Advanced Level Accounting Answer Key For

ADVANCED LEVEL ACCOUNTING – S.M.AULLYBUX & D.
HARRISON
Answer key for multiple choice questions
NO C H A P T E R S
1 2 3 4 5 6 7 8 9 10 11 12 13 14
1 A A D A B A D C A A B D
2 A D C C C C B B D D B A
3 A A D C C A C A D B C C
4 B B A C D D A C A C B A
5 B C B D B B B D D A B B
6 B D A B A D B B B A D C
7 A A A B B D C B B A B D
8 C D B D B D B C A C C A
9 B B C D D D B D C C B C
10 B C B A D A B C C B C
11 A C D B D A A C
12 A A D B D C A B
13 C B C C B D D A
14 C D A B B B D
15 C D C C C A D
16 C C C B A
17 B C B
18 A C
19 C
20 D
21 B
22 A
23 C
24 D
25 A
26
27
28
29
30
NO C H A P T E R S
15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
1 B C A C C A A D C B B B D C B
2 A B D C B B D D C C A A B C C
3 D C A C D A A D B B D A A D C
4 D A B A B B C A D D C D D C
5 D C D A A C B B C D B D B D
6 A C C A B A D D D D D C A B
7 B B B C A A D D D B D A A B
8 C D A B D D A B C D C A D D
9 B D C A D D D D A B C D D
10 D C D C D C C D C B B D
11 C C A B B C
C B C B A A C
12 D C A C C C
C A B C C C B
13 D C C D C C C C
14 B C B A A B C
15 B C C D D
16 B B D C
17 A B B
18 D C C
19 B A
20 D D
21 D
22 A
23 B
24 C
25 A
26 A
27
28
29
30
Chapter 1 Bad debts and Provision for doubtful debts
Question 3 Paula Aniston
ai) Pfdd at 31 Dec 2006 = 3 % x 160 000 = 4800

aii) Pfdd at 31 Dec 2007 = 3 % x (182 000 – 5000 – 2300 – 1700) + 1700 = 6890
c) Extract of IS
Less Expenses
Increase in Pfdd 2090
Bad debts 6 900
d) Extract of Balance sheet

Current assets
Trade receivables 174 700 (182 000 – 5 000 – 2300)
Less Pfdd 6 890
(e) Provision for doubtful debts is an estimate of the amounts owed by credit customers who might be unable to pay
their debt. The amount is not known with certainty. It is an application of the prudence concept in that profit is not
overstated in the income statement, and trade receivables are not overstated in the balance sheet.
(f) Past experience looking at previous trade receivables and the proportion that turn into bad debts.
Looking at the credit record of existing customers.
Specific knowledge of customers that are known to have financial problems.
State of the economy for example in a recession the proportion of bad debts may increase
Question 4 Klix
a) 16 800 × 1% = 168
12 600 × 2% = 252
(7 100 – 700) × 3% = 192
1 300 × 10% = 130
742
(c) Balance Sheet (extract) at 31 December 2010

$
Trade receivables 37 100
Less provision for doubtful debts 742
36 358
d) Revised Pfdd = 4 % x (16800 + 12600 + 7100 + 1300 – 700) = 1484

Hence Pfdd increases by $742 (1484 – 742)
e) Reduce profit for the year

Reduce trade receivables/current assets/balance sheet total
f) Prudence concept Current provision $742 is 2% of the trade receivables; Actual bad debts are $1500, this
may suggest the provision is insufficient.
g) Past experience
Specific knowledge about a customer
The state of the economy
Consistency concept
Industry average
Length of time
Size of trade receivables
Comparing with previous years or with competitors.
Chapter 2: Accounting for non-current assets
Question 1 Alcom Ltd
b(1) Dep: 2003 $130, 2004 $130, 2005 $310

b(2) Dep: 2003 $85, 2004 $130, 2005 $220
b(3) Dep: 2003 $130, 2004 $117 2005 $286
b(4) Dep: 2003 $85, 2004 $122, 2005 $200
Question 2 Mocota Ltd
a) Machinery a\c – Bal b\d $41 000; Megaton $11800; Disposal $12 000; Bal c\d $40 800
Provision for depreciation – Bal b\d $14 400; depreciation for the year $7 344; Bal c\d $15 264
b) Loss on disposal $1 520
Question 3 Lea Croft

a) Bal b\d $82 500; Bal c\d $92 500
b) Bal b\d $49 200 (19 600+ 17 600 + 12 000); Depreciation for the year $25 160 (3 960+7 200+14 000); Disposal
$19 600; Bal c\d $54 760
c) Loss on disposal $4 200
Question 4 Berton Ltd

a) Rates of depreciation: Equipment 10 %; Vehicles 25 %
b) Loss on disposal of equipment $6000; Profit on disposal of vehicles $2500
c) Cost at 31 Oct 2010 – Equipment $1 070 000; Vehicles $690 000
Provision for depreciation at 31 Oct 2010 – Equipment $356 000; Vehicles $415 000
Question 5 Laser Ltd
Property A\c (using method 1 of revaluation)

Bal b\d 200 000 Disposal 80 000
R.Reserve 172 700 Prov for dep 22 700
Bal c\d 270 000
372 700 372 700
NBV of property 1 April 2008 164 000 (200 000 – 36 000)

Less NBV of property disposed (66 700) (80 000 – 13 300)
NBV of property being revalued 97 300
Calcualtion of revaluation gain: Revalued amount 270 000

NBV 97 300
R.Gain 172 700
Property A\c (using method 2 of revaluation)

Bal b\d 200 000 Disposal 80 000
R.Reserve 150 000 Bal c\d 270 000
350 000 350 000
Calculation of difference between cost of property and revalued amount = 270 000 – 120 000 = 150 000
Cost being less than revalued amount, property account should be debited.
Motor vehicle a\c
Bal b\d 40 000 Disposal 8000
Acquisition 10 000 Bal c\d 42 000
50 000 50 000
b)
Pfd (property) using method 1 of revaluation
Disposal 13 300 Bal b\d 36 000
Property 22 700 Income statement 5 400
Bal c\d 5 400
41 400 41 400
Depreciation for the year = 0.02 x 270 000 = 5 400
Pfd (property) using method 2 of revaluation

R.reserve 22 700 Income statement 5 400
Bal c\d 5 400
41 400 41 400
Pfd (M.vehicle)
Bal c\d 24 477 Income statement 4 381
28 381 28 381
Calculation of accumulated depreciation on M.vehicle disposed

May 2006 0.2 x 8000 = 1600
May 2007 0.2 x (8000 – 1600)= 1280
May 2008 0.2 x (8000 – 1600 – 1280) 1024
3904
NBV of vehicle at start = 40 000 – 24 000 = 16 000

NBV of vehicle disposed = 8 000 – 3904 = 4096
Depreciation of vehicle for the year = 0.2 x (16 000 – 4096 + 10 000) = 4381
Depreciation on Plant and Machinery = 0.15 x (250 000 + 120 000 – 69375) = 45 094
c)
Property Motor Vehicle Plant and Machinery
Cost 1 April 2008 200 000 40 000 250 000
Additions - 10 000 120 000
Disposal (80 000) (8 000) -
Revaluation 150 000 - -
Cost\Revalued amount at 31 March 2009 270 000 42 000 370 000
Total depreciation 1 April 2008 36 000 24 000 69 375

Depreciation for the year 5400 4381 45094
Disposals (13 300) (3904) -
Revaluation 22 700 - -
Total depreciation at 31 March 2009 5 400 24 477 114 469
Net book value 31 March 2009 264 600 17 523 255 531
Question 6 Poka
ai) Bal b\d $460 000; Acquisition $80 000; Disposal $60 000; Bal c\d $480 000
aii) Bal b\d $150 000; Income Statement $114 750;Disposal $33 750; Bal c\d $231 000
aiii) Loss on disposal $2250
b) Cost $480 000; Acc dep $231 000; NBV $249 000
Question 7
a) Rates of depreciation: Machinery 10 %; Vehicles 25 %
b) Loss on disposal of Machinery $40 000; Profit on disposal of vehicles (part exchanged) $20 000; loss on disposal of
vehicles (accident) $60 000
c) Cost at 30 April 2010 – Machinery $5 200 000; Vehicles $3 080 000
Provision for depreciation at 30 April 2010 – Machinery $1 870 000; Vehicles $1 170 000
Question 8 CBL
ai) Motor vehicle A\c: Bal c\d $366 000
aii)
Prov for depreciation A\c
Disposal (AM 5) 3900 Bal b\d 105000
Disposal (DM 2) 3600 Income statement 73 200
Disposal (CT 18) 4800
Bal c\d 165 900
178 200 178 200
Calculation of accumulated depreciation of vehicle disposed

AM 5 June 2007 = 0.2 x 6500 = 1300
June 2008 = 0.2 x 6500 = 1300
June 2009 = 0.2 x 6500 = 1300
Total 3 900
DM 2 June 2008 = 0.2 x 9000 = 1800

June 2009 = 0.2 x 9000 = 1800
Total 3 600
CT 18 June 2008 = 0.2 x 12000 = 2400

June 2009 = 0.2 x 12000 = 2400
Total 4800
Depreciation for the year ended 30 june 2010 = 0.2 x 366 000
aiii)
Disposal a\c
Vehicle: AM 5 6500 Prov for dep: AM 5 3900
DM 2 9000 DM 2 3600
CT 18 12000 CT 18 4800
Sales proceeds AM 5 1500
DM 2 1100
CT 18 8500
Incom statement 4100
27500 27500
b) Balance sheet extract Cost Acc dep NBV
Motor Vehicle 366 000 165 900 200 100
Question 9 Tokyo Ltd
a) Plant and Machinery A\c
2004 $ 2004 $
Jan 1 Bal b\d 100 000 Mar 31 Disposal 2 500
July 1 Acquisition 1 200 July 1 Disposal 1 000
Oct 1 Transfer from inventory 9 000 Dec 31 Bal c\d 106 700
110 200 110 200
Cost of machine taken from inventory = 15 000 – 40 % x 15 000
NBV of Machinery disposed on 31 March is 2000. This had been bought on 1 Jan 2002 since those bought on
1 July 2003 was still held by the company at 31 Dec 2004. Hence this machine has been depreciated for 2
complete years
2000 = 80 %
100 % = 2500
b)
Provision for depreciation A\c
2004 $ 2004 $
Mar 31 Disposal 562.5 Jan 1 Bal b\d 17 000
July 1 Disposal 250 Dec 31 I.Statement 10 047.5
Dec 31 Bal c\d 26 235
27 047.5 27 047.5
Calculation of depreciation for the year

10 % x (100 000 – 2500 – 1000) = 9650
10 % x 2500 x 3\12 = 62.5 machine sold on 31 March
10 % x 1000 x 6\12 =50 machine sold on 1 July
10 % x 1200 x 6\12 =60 machine bought on 1 July
10 % x 9 000 x 3\12 =225 machine transferred from inventory on 1 Oct
Total = 10 047.5
Acc dep of machine sold on 31 March = (2500 -2000) + 62.5 = 562.5

Acc dep of machine sold on 1 July = 200 + 50 = 250
c)
Balance sheet extract
Cost Acc dep NBV
Plant and Machinery 106 700 26 235 80 465
Question 10 AB Ltd
Eratum: 4th line delete “A full year’s depreciation …….. of sale” and ignore information
about vehicle
a) Calculation of depreciation
31 Dec 2005
Machine 101 : Dep = 18 % x 20 000 x 10/12 = 3000
31 Dec 2006
Machine 101 : Dep = 18 % x 20 000 = 3600
Machine 102 : Dep = 18 % x 30 000 x 9/12 = 4050
7650
31 Dec 2007
Machine 101 : Dep = 18 % x 20 000 = 3600
Machine 102 : Dep = 18 % x 30 000 = 2250
Machine 102 : Dep = 18 % x 7200 x 4/12 = 432
6282
b)
Provision for depreciation A\c
2005 2005
31 dec Bal c\d 3000 Income statement 3000
2006 2006
Balc\d 10650 Bal b\d 3000
Income statement 7650
10650 10650
2007
Disposal (4050 + 2250) 6300 Bal b\d 10650
Bal c\d 10632 Income statement 6282
16 932 16 932
c) Loss on disposal $7400
Question 11 Tana Ltd
Schedule of Fixed Assets for year ended 31 December 2009

Land and buildings Machinery Office equipment
Cost at 1 Jan 680,000 320,000 210,000
Additions 18,000 20,000
Disposals (15,000)
Revaluations 120,000
Cost at 31 Dec 800,000 338,000 215,000
Total depreciation 1 Jan 72,000 160,000 85,000

Disposals (4,500)
Depreciation for the year 8,000 26,700 30,750
Total depreciation 31 Dec 80,000 186,700 111,250

Net book value 31 Dec 720,000 151,300 103,750
Dep on land and buildings = 2 % x 400 000 = 8000

Dep on Machinery = 15 % x (320 000 + 18 000 – 160 000) = 26 700
Dep on office equipment = (15 % x 210 000 – 15 000 – 10 000 + 20 000)
Note the equipment bought in 2000 has already been fully depreciated and therefore should not be depreciated in
2009
Question 12 Austen Ltd

Schedule of non-current assets at 30 April 2011
Property plant and equipment
Land and buildings Plant and machinery Fixtures and fittings
Cost
As at 1 May 2010 150 000 90 000 40 000
Additions at cost 35 000 24 000
Disposals (15 000)
Revaluation 130 000
As at 30 April 2011 280 000 125 000 49 000
Depreciation
As at 1 May 2010 45 000 39 375 10 800
Charge for the year 5 600 17 125 4 900
Eliminated on disposal (4 500)
Eliminated on re valuation (45 000)
As at 30 April 2011 5 600 56 500 11 200
Net book value at 30 April 2011 274 400 68 500 37 800
Land and buildings depreciation charge: 280 000 x 2% = 5 600

Plant and machinery depreciation charge: 50 625 + 35 000 = 85 625 x 20% = 17 125
Fixtures and fittings depreciation charge: 40 000 – 15 000 + 24 000 x 10% = 4 900
Fixtures and fittings eliminated depreciation: 15 000 x 10% x 3 = 4 500
Chapter 3: Correction of Errors
Question 1: Samir Khan

Eratum Adj 5 change Ismail to Samir
a) Total trial balance $146 700 and balance suspense $1100.
b) 1. Dr suspense $2000, Cr sales $2000

2. Dr Drawings $400, Cr suspense $400
3. Dr Cash $500, Cr Suspense $500
4. Dr Machinery $5000, Cr Purchases $5000
5. Dr Drawings $1000, Cr Purchases $1000
c) Revenue $127000
Purchases $70000
Machinery $14000
Drawings $9400
All other figures unchanged
Question2: Malcom Dsouza

a) 1. Dr Stationery $50, Cr suspense $50
2. Dr Suspense $1000, Cr Sales $1000
3. Dr Abdullah $240, Cr Abdul $240
4. Dr Suspense $28, Cr Discount allowed $14, Cr Discount received $14
5. Dr Joe Jones $190, Cr Suspense $190
B) Corrected profit $16178(+1000 + 14 +14 – 50)
Question 3: Gavin
Corrected profit $4 900 (7300 + 6000 -2300+ 1000- 800 + 600 – 1700 + 1900 + 300 -4800 -1200 -1400)
Question 4: Tinbin
Eratum Adj 6 change Kathleen to Tinbin
a) 1. Dr suspense $192, Cr other payables $192

2. Dr wages $40, Cr suspense $40
3. Dr shelving $320, Cr purchases $320
4. Dr suspense $160, Cr sales $160
5. Dr suspenses $18, Cr Telephone $18
6. Dr suspense $20, Cr discount allowed $10, Cr discount received $10
b) Bal b\d credit side $350
c) Corrected profit $3578 (+320 +160 +18 + 10 + 10 – 40)

Question 5: Watson
$348 000 loss (+35 000 + 60 000 – 10 000 – 96000 – 14 000 – 120 000 – 47 000 + 25 000 + 21 000 + 14500 + 14 500 -
81 000)
Question 6: Patsun
a) 1. Dr sales $300, Cr suspense $300
2. Dr wages $450, Cr suspense $450
3. Dr Income Statement (depreciation) $6000, Cr provision for depreciation $6000
4. Dr suspense $3666, Cr Bank $3666
5. Dr suspense $200, Cr Smith $200
6. Dr suspense $80, Cr James $80
7. Dr Suspense $40, Cr David $40
b) Corrected profit $12470( - 300 – 450 – 6000)
Question 7: Shellix
a) 1. Dr suspense $1000, Cr sales $1000
2. Dr Plant $240, Cr Expenses $240
3. Dr Discount received $150, Cr Cathy $150
4. Dr insurance $240, Cr other receivables $240
5. Dr suspense $500, Cr purchases $500
6. Dr Return outwards $230, Dr Return inwards $230, Cr suspense $460
b) Corrected profit $19870 (18 500 + 1000 + 240 + 240 + 500 – 230 – 230 – 150)
Question 8: T Jackman
a) Suspense account: Dr side: Janet $30,Skyrays $66 and Bimbo $540
Cr side: Bal b\d $391, Equipment $60 and Bank charges $185
b) Corrected profit $15315
Question 9: Clara
a) 1. Dr Cash\Bank $700, Cr suspense $700
2. Dr Pfdd $700, Income statement $700
3. Dr supplier (trade payables) $420, Cr suspense $420
4. Dr suspense $4500, Cr sales $4500
5. Dr equipment $2250, Cr maintenance exp $2250
6. Dr suspense $80, Cr trade payables $80
7. Dr repairs $350, Cr other payables $350
8. Dr Green (trade receivables) $1000, Cr suspense $1000
b) Corrected profit $27800

c) Total NBV of NCA $141250 (NBV of Equipment $23 250)
Total CA $48 910 or $48 210 (trade receivables $24 900; Pfdd $2900)
Total CL $31 960 or $31 260 (trade payables $9460; Other payables $350)
Question 10: Alex

a) 1. Dr Interest (profit) $1200; Cr Other payables $1200
2. Dr sales (profit) $2500; Cr Trade receivables $2500
3. Dr Drawings $450; Cr Maintenance (profit) $450
4. Dr Machinery $3500; Cr Wages (profit) $3500
Dr Depreciation (profit) $700; Cr Provision for depreciation $700
5.Dr Bank $420; Cr Trade receivables $420
Dr Bad debts (profit) $280; Cr Trade receivables $280
6. Dr Disposal $7500; Cr Vehicle $7500
Dr Provision for depreciation $4500; Cr Disposal $4500
Dr Bank $3000; Cr Disposal $3000
b) Corrected profit $13 770 (14 500 - 1200 – 2500 + 450 + 3500 – 700 – 280)
Question 11: Lucyna
Suspense A\c: Dr Side - Bank $200; Purchases $90; Trade payables $67
Cr Side – Bal B\d $330; Rooney $27
b) Trial balance: Trade receivables $10 337; Trade payables $3527; Purchases $94 250; F& Fittings $4470
Question 12: Jack Sparrow

a)
1. Dr Suspense $81 000; Cr Sales $81 000
2. Dr Drawings $11 000; Cr Suspense $11 000
3. Dr Sales $15 500; Cr Suspense $15 500
4. Dr Willis $7 800; Dr Walls $7 800; Cr Suspense $15 600
5. Dr Return inwards $10 500; Cr Return Outwards $10 500
6. Dr Suspense $4 000; Cr Valentine $4 000
b) Corrected Profit $106 500 (+81 000 – 15 500 – 10 500 + 10 500)
c) Trade receivables $21 000; Trade Payables $18 900; Drawings $56 000
Chapter 4: Control Account
Question 1 Spam
a) Bal c\d: SLC (normal) $9820

PLC (normal) $3270
Question 2 Popo Ltd
a) Bal c\d: SLC $12390

PLC $4140
Question 3 Ryan Bond
a) Bal c\d: SLC $1456

PLC $2005
Question 4 Sunny
a) Bal c\d $19540 Dr side Bal b\d $19 900; sales undercast $200; interest $40
Cr side B.debts $260; Set off $340
b) $19 540 (Add $40;Less $140;Less $60;Add $1600)
Question 5 Brenda
a) Bal c\d $22550
b) $22 550 (Less $60;Add $1150;Add $150)
Question 6 Dream Beds

a) Bal c\d $58730 Dr side Bal b\d $63 530; Interest $30 – Cr side B.debts $850; Set off $1980; Sales $400;
R.Inwards $1600
b) $58 730 (Add $180;Less $240;Less $1980;Add $30;Less $400)
Question 7
a) Dr side- Bal b\d $26 153; D.cheque $2000; Sales undercast $1800; Bal c\d $250 (minority)
Cr side - Bal b\d $150; B.debts $1250; Set off $420; R.inwards $800
b) $27 583 (28503 – 120 - 800)

Question 8 Electra
Eratum change year 1999 (2 places) and 1997 to 2000
a) $157 000
b) Balance adjusted control a\c $153 300 (dr side $157 000; Cr side $1000,$700, $2000)
Adjusted ledger balance $153 300 (156 125 – 1000 – 425 – 2000 + 600)
Question 9 Jackson
a) Bal c\d Sales ledger control $54409; Bal c\d purchases ledger control $40653
b) Bal c\d Adjusted Sales ledger control $54052; Bal c\d Adjusted purchases ledger control $40831
c) Statement adjusting sales ledger balance – original sales ledger bal $54204 (Add $27; Less $54;Less $125)
Statement adjusting purchases ledger balance – original purchases ledger bal $39997 (Add $244; Add $590)
Question 10 Lio Limited

a) Bal c\d $43 400
b) Bal c\d $41 000 [Dr 43 400; Cr 700; Cr 1700]
c) $41 000 (-900-1700)
Question 11 Jean
a) Bal c\d adjusted PLC $19800
b) Add $850; Less $40; Add $90; Less $60
Question 12 Janet
a) Bal c\d $17500 (Dr side interest $30,credit sale $10) (Credit side B.debts $200, Set off $310, R.inwards $90)
b) $17 500 (Add $750; Less $60; Less $90; Less $140)
Question 13 Supreme Ltd

Original SLC balance c\d $169 400; Original PLC balance c\d $143 200
Adjusted SLC bal c\d $183 300 [dr side $400, $6500, $7000]
Statement adjusting ledger balances $183 300 [ +3400+7000-2250]
Question 14: Harvey Rabbit

a) SLC Bal c\d $24 969
bi) Adjusted SLC $28 595
bii) Less $840; Add $998; Add $2102; Less $896; Less $630; Add $816; Add 200
Question 15
a) Bal c\d $16126 (Dr side bal b\d $16 351;bal c\d $3049 [2699+350]) [Cr side bal b\d $2699; sales overcast
$300; Reecipts $275]
b) $16 126 [Add $894; Less $514;Less $275]
Question 16 Bamma Ltd

SLC bal c\d $92 660; PLC bal c\d $68 875
Chapter 5: Incomplete Records

Question 1: Mike Thomson
a) Sales $226 450; Purchases $162 420
b) Cost of sales $153 770; Gross profit $72 680; Total expenses $55 215; Profit for the year $17 465
c) Total NBV of NCA $30 765; Total CA $68 850; Total CL $30 670; Total NCL $10 000; Capital $47 280 (13500 + 9600
+21 000 +32900 +180 -17 700 – 12200)
Question 2: Paul Lander
a) Revenue $87 700; Cost of sales $32 400; Gross profit $55 300; Total expenses $38 620; Profit for the year $18 180
Total NBV of NCA $6800; Total CA $28 000; Total CL $6920; Total NCL $8 000; Capital $16 700
(3000+8000+6000+3500-500+1000-4300)
Question 3: Salman
b) Revenue $63 680; Purchases $41 085; Cost of sales $39 800; Gross profit $23 880;Drawing of goods $755; Total
expenses $20 220; Profit for the year $3 660
c) Total NBV of NCA $17 505; Total CA $9 550; Total CL $4560; Capital $26 290;Drawings $7455
Question 4: Tan Boon

Receipts from customers 593 000 Total NBV of Non-Current Assets 45 000
Payment to suppliers 515 000 Total Current Assets 183 000
Drawings 19 000(B.F) Total Current Liabilities 26 500
Capital at start 155 000
Cost of sales 458 500
Gross Profit 196 500
Total expenses 131 000
Profit for the Year 65 500
Question 5: Melina Jackson
Question 6: Jessica Brooks
Question 7: Patricia Large
Credit Sales 49 070 Total NBV of Non-Current assets 4 700

Cash Sales 12 930 Bank Balance 11 730
Total Sales 62 000 Total Current Assets 12 500
Total Purchases 40 650 Total Current Liabilities 2 950
Gross Profit 12 400 Capital at Start 22 510
Cost of Sales 49 600 Drawings 10 300
Goods stolen 7 350 Capital Introduced 1 810
Total Expenses 12 170
Profit 230
Question 8: John Brown
a) Revenue $90 000 (25 000 + 65 000); Purchases $34 700;Cost of sales $34 700; Gross profit $55 300; Total expenses
$38 600; Profit for the year $17 400
Total NBV of NCA $8000; Total CA $47200; Total CL $23900; Capital $27100; Drawings $21 200
Question 9: Jack Bowman

Eratum Adj 2 change Jane Newbury to Jack Bowman
a) Revenue $140 400; Purchases $109 400; Cost of sales $108 000; Gross profit $32 400;Total expenses $18 360;
Profit $14 040
b) Total NBV of NCA $32 192; Total CA $26 400; Cash and cash equivalent $ 6 100; Total CL $13 200
Question 10: Shaista
Total Purchases 49 500

Total Sales 62 850
Cost of Sales 52 760 (2 000+1 290+49 470)
Goods Stolen 240
Question 11: Wong Li Keng

Closing inventory $19400; Cost of sales $294300; Gross profit $196 200; Pfdd $1845; Dep f& Fittings $5300; Dep
vehicles $3072; Interest on loan $1900; total exp $195867; Profit $2833.
NBV of F&F $35 700; NBV of vehicles $12 288; Rent prepaid $11 250; Total CA $90305; Interset owing $1100; Total
CL $40850; Total NCL $44 000; Capital at start $80 610.
Question 12 P.Line
Revenue $178 200; Purchases $156 600; Cost of sales $148 500; Gross profit $29 700; Total expense $28 100; Profit
for the year $1 600.
Total NBV of NCA $32 500; Total CA $45 500; Total CL $15 700; Total NCL $10 000; Capital $58 300
Question 13 Ray Damson
a) $155 000
b) Balance at 30 September 2011 $50800 overdraft
c) Goods damaged in fire $24 400; Cost of sales $147 200; Gross profit $36 800; Total expenses $62 000; Loss for the
year $25 200
Total NBV of NCA $170 300; Total CA $49 000; Total CL $102 000
Question 14 Phillip Bust
Cash Account
Bal b\d 330 Trade payables 52180
Capital 14000 Expenses 7215
Receipts 67900 Drawings 6250
M.Van 5800
Wages 5330
Loan 3500
Additional drawings 1490 (balancing figure)
Bal c\d 465
82230 82230
Revenue $68160; Purchases $52720; Cost of sales $51120; Gross profit $17040; Total expense $13910; Profit for the
year $3130.
Total NBV of NCA $6300; Total CA $11330; Total CL $3890; Capital $4350; Additional capital introduced $14000;
Drawings $7740
Question 15 A Lee Quinn

ai) $15 610
aii) $140 500
aiii) $126690
b) G.Profit $99 000; Total expenditure $47 790; Profit for the year $54 020
c) NCA $96 400 (70 000 + 12 000 + 14 400); CA $103 218 (19 500 +12 000 + 71 718 – bank is b.Figure); CL $11 000;
Capital at start $150 000; Drawings $15 402
Question 16 John White
Revenue $320 000; Purchases $220 000; Closing inventory $28 000 (B.Figure); Cost of sales $192 000; G.P $128 000;
Total expenses $100 500; Profit for the year $27 500
Total NCA $12 000; Trade receivables $89 100; Other receivables (F.overhead prepaid) $6260;
Trade payables $50 000; Variable overheads owing $6 700; Overdraft $15 660; drawings $4500
Fixed overhead prepaid = 5760 + 15 700 + 3600 – 18800 = 6260

Variable overhead owing = (0.24 x 320 000) – 22700 – 26300 – 21100 = 6700
Trade receivables = 320 000 – 29000 – 25000 – 67000 – 40000 – 54000 – 15000 – 900 = 89100
Question 17 Jimmy Chang
a) Bank balance $12400

b) Revenue $51 000; Purchases $32 800; Cost of sales $29 000; Gross profit $20900; Total expenses $19300;
Profit for the year $2500
Total NCA $10 000; Total CA $27500; Total CL $23000; Capital at start $22100
Question 18 Sherlock Moriarty
a) Revenue $471 570 ; Purchases $315 120; Cost of sales $314 380; Gross profit $157 190;Total expenses $103 505;
Profit for the year $63 185
Total NBV of NCA $120 250; Total current assets $104 400; Total CL $35 700; Capital at start $140 000
Question 19 Ousman Sagna
Revenue $301 800 (Cash sales $100 255; credit sales $201 545); Purchases $222 600; Cost of sales $225 300; Gross
profit $75 100; Total expenses $49 030; Profit for the year $26 070
Question 20 Marcel
ai) Credit purchases $95 600
aii) Credit sales $128 900
b) $9 700 (33 000+95600-29700-8600[10750 x 100\125] -60000 [2\3 x 128900-9200-29700]-20600)
Chapter 6: Non-Profit Organisation
Question 1: Texas Billard Club
Purchases 44 700
Café Profit 27 120
Income: Subscription Ordinary
Total Income 30 800
Total expenditure 63690
Surplus 50 320
13 370
Total NBV of Non-Current assets = $145 400
Total Current Assets =$135 350
Total Current Liabilities =$11 250
Accumulated fund at start =$246 630
Question 2 : Malaga Sports club
a) Total income $ 5734 (4314 + 120 + 1300); Total expenditure $5662; Surplus $72
Total NCA $14800 (12000 + 2800); Total CA $1549 (110 + 1439); Total CL $308 (168 + 100 + 40); Acc Fund $15 489;
Life subscription $480
Question 3: Schubert Music Club

a) Subscription Account
Balance b/d 400 balance b/d 300
Income and expenditure 2800 Receipts 2500
Write Off 100
Balance c/d 300
b) Purchases 7600 c) Life Subscription 350

Cost of Sales 9600 Total Income 4000
Café Profit 850 Total expenditure 11600
Deficit 7600
Question 4: Adsburry sports and social club
Purchases 23 300 Total NBV of Non Current Assets 47 275

Cost of Sales 25 100 Cash and Cash equivalent 31 200
Bar Profit 16 600 Total Current Assets 37 750
Total Current liabilities 5 350
Subscription Ordinary 23 950 Accumulated Fund at Start 51 000
Total Income 42 300
Total expenditure 19 625
Surplus 22 675
Question 5 Disney Sports club

a) Total income $2986 (1875 + 631 + 100 + 60 + 320); Total expenditure $2520 (140 + 230 + 800 + 215 + 185 + 500 +
450); Surplus 466
b) Total NCA $31 750 (24 500 + 7250); Total CA $5739 (75 + 110 + 5554); Total CL $195; Acc Fund $36 828
Question 6 Racket Sport Club

Eratum Restaurant supplies should be on credit side in Receipt and payment a|c
a) Acc Fund $14505

b) Purchases $36050; Cost of sales $34920; Restaurant profit $16730
c) Total income $34080 (17350 + 16730); Total expenditure $34165 (15600 + 4320 + 3825 + 3320 + 2800+ 3000 +
1300); Deficit $85
Total NCA $73750 (63700 + 10050); Total CA $9030 (7520 + 650 + 860); Total CL $8360 (4785 + 125 + 450 + 3000);
NCL $60 000.
Question 7 Picasso Art Club

a) Profit on art material $1530
b) Subscription written off $25; Subscription in income and expenditure $1410; Total income $3550; Total
expenditure $3310; Surplus $240
c) Non-current assets $4600; Current assets $1725; current liabilities $385
Question 8 Seletar social club
a) Inventory loss $1 920; Cost of sales $19 180; Bar profit $300
b) Total income $21 600; Total expense $19 760; Surplus $1 840
Total NBV of NCA $88 000; Total CA $22 280; Total CL $860; Acc Fund $107 580
Question 9 : Orchard Social club

a) Bar profit $5200
b) Total income $20 310 (5200 + 13480 + 420 + 1210); Total expenditure $14 160 (7950 + 1720 + 4490); Surplus
$6150
Total CA $13 980 (1850+620+6400+4600+30+480); Total CL $2280 (1150+310+820); Acc Fund $3550; Legacy $2000
Question 10 Avenal Social club

a) Inventory stolen $3550; Cost of sales $36 450; Bar profit $12 150
b) Subscription $32 600; Disco profit $6 900; Total expenditure $43 900; Surplus $7750
Total NBV of NCA $120 200; Total CA $37 400; Total CL $2350; Acc Fund $147 500
Question 11 : Vacoas Tennis club

ai)
Receipt and payment A\c
Bal b\d 1200 Purchases 1850
Subscription 4000 Sundry expenses 1170
Sales 3500 Electricity 257
Donation 50 Maintenance and wages 4500
Sale of tickets for annual dance 2640 Dinner dance expense 1900
Equipment 600
Bal c\d 1113
aii) Cost of sales $2000; Refreshment profit $1500

aiii) Total income $6410; total expenditure $6660; Deficit $250
Question 12 : Carlos Snooker Club

a) Bar sales $18 000; Cost of sales $14 400; Bar profit $3600
b)Bal $3750 Dr
c) Subscription transferred to income and expenditure A\c $16 800

d) surplus $3776
e) $100 846 (97 070 + 3776)
Question 13: Top Hat Sports club

a) Annual Subscription $39 750; Life Subscription $240; Café loss $3560; Depn $3000; Total exp $42 930; Deficit
$2940
b) Non-current assets $19 500; C.Assets $5330 (800 + 750 +3780) C.Liabilities $1820 (760 + 910 +3780);
Acc Fund $21 390; Lifemembership $4560
Not-for-profit organisation Public limited company

Has balance sheet Has statement of financial position
Shows accumulated fund Shows share capital and reserves
Has income and expenditure account Has income statement
Shows surplus or deficit Shows profit or loss
Limited access to financial statements General access to financial statements
Has receipts and payments account Has statement of cash flow
Chapter 7: Inventory Valuation-IAS 2
Question 1: Janet
i) FIFO:
Perpetual $2 670
Periodic $2 670
ii) AVCO: Perpetual $2 531
Periodic $2 473
Question 2: Jenifer
i) FIFO: Perpetual $8 280
Periodic $ 8 280
Periodic $7 538
Question 3: Mike
Periodic $1 932
Periodic $1 896
Question 4: Margaret
Periodic $1 880
Periodic $1 822
iii) Revenue $11 770
Cost of sales $5 575
Gross Profit $6 195
Question 5 Rosedale
a) Closing inventory FIFO $5100; Gross profit $21 080; Trade receivables $59 380; Trade payables $43 400;
Alternatively instead of Trade receivables and Trade payables can put Cash $15 980
b) Closing inventory AVCO $4760
Question 6 Alan Balwin

ai) $172.5 (75 x $2.3)
aii) $163.5 (75 x $2.18)
aiii $162.35 (75 x $2.165)
Question 7: Pear Ltd

FIFO periodic $112 859; AVCO perpetual $108 997
Question 8 Monica Celest

$197 790 (234 500 – 84 000 + 48 500 – 4 050 + 3470 – 7600 – 600 + 5000 + 2570 )
Question 9 Genelia
Eratum change Krishna to Genelia
$27 957 (26 870 – 1940 +2625 +360 -30 +72)
Question 10: Mustapha Deoff

Inventory= $22 596 (24 500 + 6744 -7950 +80 -88 +200 -400 -240 -250)
Question 11 Alan Smith
$156 320 (162 500 + 144 000 – 150 000 – 6160 + 8500 – 4600 – 5600 + 7680)
Question 12: Harold Green

Inventory= $16 743 (43 400 – 2100 – 10000 -2000 +280 000 -4200 -290 000 + 2143 – 500)
Question 13 Dolly Ltd

Eratum Adj 8 change 4 to 3,Thomas Strong to Dick Paulsen and Square Deals to Dolly
a) $38 790 (17 800 + 165 000 – 8500 – 118300 +2340 – 10000 – 3700 – 5850)
b) Selling price of goods sold by Dick = $9 000 (5850 ÷ 65 x 100)
Commission = 10 % x 9 000 = $900
Question 14 Joy Locke

a) Engine 7.00 + 0.80 + 10/2 = 12.80
Carriage 5.00 + 0.50 + 10/5 = 7.50
Track 2.00 + 0.25 + 10/10 = 3.25
b)
Plain engines Painted engines
Units of Inventory on 31 Jan 12 (balancing figure) 39 (Balancing figure)
Received from toymaker 20 -
Plain engines taken for painting (18) 18
Sales of painted engines - (21)
Engines sent on sale or return basis - (10)
Units of inventory at 4 Feb 14 26
Value of inventory : Plain engines 84 (12 x 7)

Good painted engines 486.4 (38 x $12.8)
Faulty painted engine 4 (1 x $4)
Total value 574.4
Question 15 Bettina
Eratum Inventory figure missing on 7 April 2011, it should be $10 500
$17 130 (10 500 + 780 – 9400 + 2500 + 5400 + 7350)
Chapter 8: Departmental Accounts
Question 1-(Bridge Ltd)

a)
Wood Metal
Rent and Rates 5460 3640
Heat and Light 1080 720
Insurance of inventory 500 750
Depreciation- Fittings 4800 2800
General Administration- Salaries 5600 8200
b)
Wood Metal
Cost of Sales 106 000 161 000
Gross Profit 64 000 82 000
Total expenditure excluding bonus 40 090 44 110
Bonus 1 139 1 804
Profit for the year 22 771 36 086
c) Total NBV of Non-Current Assets=$223 400

Total Current Assets=$79 800
Total Current liabilities=$24 543
Question 2–( Dellow and Coucom)
Television Computing Telephones

Cost of Sales 111 000 199 000 38 000
Gross Profit 103 000 229 000 69 000
Total Expenditure 117 065 175 280 46 145
Profit/ Loss (14 065) loss 53 720 22 855
Question 3 Krabtree
a)
Spares Electical
Revenue\Income from repairs 116 450 98 700
Cost of Sales 27 930 -
Gross Profit 88 520 -
Total expenses 67 300 83 950
Chapter 9: Manufacturing Account
Question 1: Gary Nevin
Cost of Raw Materials 36 000 Total NBV of Non-Current Assets 23 000

Prime Cost 67 000 Total Current Assets 71 880
Total Overheads 28 000 Total Current Liabilities 8 500
Factory Profit 23 000
Cost of Production at Transfer Value 115 000
Cost of Sales 111 550
Gross Profit 80 450
Increase in Provision for Unrealized profit 690
Profit for the year 49 880
Question 2: Carlton Plc
Cost of Raw Materials 105 000

Prime Cost 245 000
Total Overheads 59 000
Net Revenue 555 000
Decrease in Provision for Unrealised \profit 4 545
Question 3: Janice Brook
Cost of Raw Materials 36 000 Total NBV of Non-Current Assets 81 500

Prime cost 75 000 Total current assets 55 100
Total overheads 40 550 Total current liabilities 12 200
Factory profit 20 650 Net assets 124 400
Cost of production at Transfer Value 123 900
Gross Profit 58 100
Provision for Unrealised Profit 2 000
Question 4: Pakenham Ltd
a) Opening Inventory of Finished Goods at Transfer Value 34 500

Closing Inventory of Finished Goods at Transfer Value 36 800
b) Value of Inventory : Raw Materials 18 000

Finished Goods 32 000
Question 5 Luke and Bryan
Cost of Raw Materials 126 000

Prime Cost 207 000
Increase in Provision for Unrealised profit 730
Share of residual profit: Luke 23 478
Bryan 15 652
c) Balance current account: Luke $22 652 Cr

Bryan $44 978 Cr
Question 6 Excel Ltd
Eratum change variable factory overheads to $14 700 and Inventory of finished goods to $4 000 (cost price)
Prime cost 32 000

Factory Indirect cost
Factory overheads: Fixed 19 100
Variable 14 700
Depreciation P& machinery 6 200 40 000
Cost of production at cost 72 000
Factory profit 18 000 (balancing figure)
COP at transfer value (90 x 1000) 90 000
Income statement
Revenue 138 000
Less cost of sales
Opening inventory at transfer value 4 000 + (18 000 ÷72 000 x 4 000) 5 000
COP at transfer value 90 000
Less closing inventory (5 + 90 – 92) x $1000 (3 000)
G.Profit 46 000
Factory profit 18 000
Add decrease in PFUP (1 000 – 600) 400 18 400
64 400
Less expenses
Admin exp (18 700 – 2300) 16 400
S & Distribution cost 26 300 42 700
c) NCA $53 400 (43 400 + 10 000)

CA $18 800 (2400 + 2100 +7500 + 2300 +4500)
CL $3100
O.Shares $45 000 (40 000 + 5000)
Share premium nil (4 000 – 4000)
G.Reserve $11 000 (7000 – 1000 + 5000)
R.Profit $13 100 (4400 + 21700 – 5000 – 8000)
Note bonus issue = $5 000
Question 7 Merton Ltd
a) Cost of raw materials $148 100; Prime cost $253 500; Total overheads $75 500; Factory profit $27 000; COP at
transfer value $345 000
b) Increase in Pfup $740

c) Cost of sales $338 100; Gross profit $86 900; Total expenses $67 000; Profit $46 160
Total NBV of NCA $413 500; Total CA $137 760; Total CL $143 900; Retained profit $107 360
Question 8 Nutt and Bolt
a) Cost of raw materials $22 300; Prime cost $633 000; Total overheads $134 000; cost of completed production at
cost $756 000; Factory profit $151 200.
b) Cost of sales $832 800; Gross profit $117 200; Total expenses $57 800; Profit $198 200; Share of profit Nutt $ 63
600 Bolt $63 600.
Current account balance Nutt $65 600, Bolt $44 600
Question 9 David
Eratum change amount of direct labour to $28 200 and Trade receivable to $41 600
Manufacturing A\c
Raw Materials
Opening inventory 2800
Purchases 16 400
Less closing inventory -
Cost of raw material consumed 19 200
Other direct costs
Direct labour 28 200
Prime costs 47 400
Indirect costs
Factory overheads: Variable 9600
Fixed 43 000 52 600
COP at transfer value (800 x $150) 120 000
Income statement
Revenue 155 800
Less cost of sales
Opening inventory at transfer value (110 x $150) 16 500
Less closing inventory (90 x $150) (13 500)
Cost of sales (123 000)
G.Profit 32 800
Add decrease in PFUP (2750 - 2250) 500 20 500
53 300
Less expenses
Admin and selling exp (18 700 – 2300) 28 500
NCA $25 000 (16 000 + 9000)

CA $93 950 (11 250 + 41 600 +41 100)
CL $18 100
Question 10 Macheda
Manufacturing A\c
Raw Materials
Opening inventory 28 000
Purchases 50 000
Less closing inventory 32 000
Other direct costs
Direct labour (50 000 + 2000) 52 000
Direct expense 12 000 64 000
Prime costs 110 000
Indirect costs
Factory overheads: Variable 18 000
Fixed 22 000
Depreciation of property (0.02 x 200 000 x ¾) 3000
Depreciation of P & M 0.25 x (100 000 – 36 000) 16 000 59 000
169 000
Add opening work in progress 72 000
Less closing work in progress 80 000
Factory profit (balancing figure) 48300
b)
PFUP A\c
Bal b\d 7500
Bal cd 12 000 I.Statement 4500
12 000 12 000
Pfup at start = 48 300 ÷161 000 x 25 000 = 7500

Pfup at end = 48 300 ÷161 000 x 40 000 = 12000
Note: The opening balance of pfup does not appear in the trial balance this means that opening inventory of
finished goods in the trial balance is at cost price. When pfup appears in the trial balance then inventory of
finished goods must be at transfer price for the trial balance to agree.
Income statement
Revenue 300 000
Less cost of sales
Opening inventory at transfer value (25 000 + 7500) 32 500
Less closing inventory (40 000 + 12 000) (52 000)
G.Profit 110 200
Less increase in PFUP (12 000 - 7500) 4 500 43 800
154 000
Less expenses
Marketing exp (20 000 – 1000) 19 000
Admin overheads 34 000
Dep property (0.02 x20 000 x 1\4) 1 000
Dep office machinery (0.1 x 36 000) 3 600 57 600
Question 11 Stam
Manufacturing A\c
Raw Materials
Purchases 278 630
Other direct costs
Direct wages 372 560
Royalties 6 500 379 060
Prime costs 660 040
Indirect costs
Indirect wages 74 280
Heat and light 2\3 x (26 650 + 800) 18 300
General factory expenses 47 080
Insurance 2\3 x (15 010 – 760) 9 500
Depreciation of P & M 0.1 x 210 000 21 000 170 160
830 200
Add opening work in progress 23 170
Less closing work in progress 24 640
Factory profit (0.2 x 828 730) 165 746
PFUP A\c
Bal b\d 6 240
Bal cd 7 344 I.Statement 1 104
7 344 7 344
Note : the opening inventory of finished goods is at transfer price. Used the rate of factory profit to check.
20 /120 x 37 440 = 6 240 (if you take 20 % of 37 440 you don’t get 6 240)
The closing inventory can be either cost or transfer value, I have taken it as cost.
Pfup at end 20 % x 36 720 = 7344
Income statement
Revenue 1 163 750
Less cost of sales
Opening inventory at transfer value 37 440
Less closing inventory (40 000 + 12 000) (44 064)
G.Profit 175 898
Less increase in PFUP (12 000 - 7500) 1104 164 642
340 540
Less expenses
Heat and light 9 150

Insurance 4 750
General office exp 36 740 50 640
Question 12 Helen Tong
(a) Manufacturing account for the year ended 31 December 2007

$
Purchases of raw materials 230 400
Direct wages 359 500
Manufacturing royalties 17 100
Prime cost 607 000
Factory overheads 215 000
Total production cost 822 000
Manufacturing profit 304 140
Transfer price 1 126 140
Income statement for the year ended 31 December 2007(1)

$ $
Revenue 1 750 000
Inventory of finished goods (12 300 × 129%) 15 867
Transfer price 1 126 140
Inventory 18 769
Cost of sales 1 123 238
Gross profit 626 762
(b) Provision for unrealised profit
$ $
Balance b/d 3567 W1
Balance c/d 5069 Income statement 1502
5069 5069
Balance b/d 5069 W2
W1 15867 – 12 300(1) = 3567

W2 30 4140 ÷ 822 000 × 100 = 37% 37 ÷ 137 × 18769 = 5069
(c) W1 1 126 140 ÷ 4000 = $281.535 (transfer price per unit ie selling price of the factory)
W2 (607 000 + 43 000) ÷ 4000 = $162.50 (variable cost per unit)
Contribution per unit = $119.035 (281.535 – 162.5)

Fixed costs = 80 % x 215 000 = 172 000
Break even = $172 000 ÷ $119.035 = 1445 units
Margin of safety = 4000 – 1445 = 2555 units
(d) 1445 × $281.535 = $406 818
Chapter 10 Accounting Concepts
Question 1 Donald
(a) (i) Donald should include a proportion of this amount in the current years Income statement as $7,200
covers a 6 month period of which 5 months are in the next accounting period. He should therefore
include $1,200, which is equivalent of one month’s rent should be included in the income statement for
the year ended 31 December 2007. The remaining $6,000 should be included in the current assets on
the Balance Sheet as a prepayment.
This is an example of the accruals (matching) concept which states that expenses should be matched
against the period that they are incurred.
(ii) Donald should not include the $2,500 for a private holiday in the general expenses. This should be
included in Donald’s drawings as it is for personal use.
This is an example of the business entity concept which states that the financial transactions of the
business should be treated separate from those of the owner. Therefore personal transactions should
not be confused with business transactions.
(iii) Donald should not include the sales of $10,000 as the customer has not yet signed the contract. Profit
should not be recognised until the exchange of goods or services. This is an example of the realisation
concept which states that profit should not be recognised until the goods or service pass to the
customer.
(iv) Donald should not include the management as an asset of $50,000 in the Balance Sheet, as no monetary
amount has exchanged hands.
This is an example of the money measurement concept which states that only assets that have a true
monetary value can be included in the balance sheet. This helps to ensure that amounts on the balance
sheet are objective not subjective.
Question 2
1. Business entity concept: The business dealings of the owner should be kept separate from his private affairs.
2. Money measurement concept: No monetary amount has exchanged hands, only assets that have a true
monetary value can be included in the balance sheet
3. Materiality concept: The door mats are small items of insignificant value and therefore it is allowed to treat
them as a revenue expenditure instead of a capital expenditure
4. Matching concept\Accrual concept: Although the invoices have not been received by the end of the financial
year , the purchases have been made in the current financial year and therefore should be included in the
current year’s purchases.
Question 3 Polska
Item Effect on profit Concept

(1) Audit and tax fees (5000) Accruals
(2) Golf clubs on sale or return (10000) Realisation / prudence
(3) Rent 2000 Accruals/Matching
(4) Fixtures and fittings 750 Cost
(75)
(5) Inventory (500) Prudence
Chapter 11: Financial Statements of Partnerships
Question1: Brown and White

Total expenditure $14 700
Share of Profit: Brown $2 250
White $1 500
Current Account: Brown $4 250(cr)

White $7 750(cr)
Question 2: James and Gemma

Jan-June July-Dec
Cost of sales 60 000 100 000
Gross Profit 30 000 50 000
Closing Inventory 16 300 20 300
Depreciation 5 100 5 725
Interest 1 350 1 350
Remaining expense 6 000 6 000
Profit 17 550 36 925
share of Residual Profit: James 4 275 13 462.5
Gemma 4 275 13 462.5
Current A/c: Bal c/d- James 22 737.5 Cr

- Gemma 19 237.5 Cr
Question 3: Hook, Line and Sinker

a)
i) Loss on disposal 2 360
Total Interest on loan 6 500
Corrected profit for the year 36 140
Share of Residual Profit- H $10 445
L $6 267
S $4 178
ii) Current A/c balance Capital A/c balance

H= $12 445 Cr $40 000
L= $11 517 Cr $15 000
S= $4 478 Cr $10 000
d) Total NBV of NCA = $141 440

Total Current Assets = $22 000
Total Current Liabilities = $5 000
Total Non-Current Liabilities =$65 000
Question: 4 Short and Tall
Revenue 600 000
Less cost of sales
O.G.Purchased 420 000
Less Closing inventory 90 000
Jan – Aug Sept – Dec
Gross profit (apportioned in proportion to revenue) 112 000 98 000
Less expenses
Rent and rates (time basis) 4 000 2 000
Heat and light (time basis) 8 400 4 200
Staff salaries: Long as employee 10 000 -
Other staff (time basis) 20 000 10 000
Selling expenses (proportion of revenue) 11 200 9 800
Distribution expenses (proportion revenue) 4 960 4 340
Interest (time basis) 5 000 2 500
Bad debts (proportion revenue) 4 640 4 060
Less Appropriation
Salaries: S 6667 4 000
T 6667 4 000
L - 13 334 4 000 12 000
Residual profit 30 466 49 100
Share of residual profit S 20 311 24 550
T 10 155 16 367
L - 8 183
Question: 5 Archer and Bowman

a) Corrected profit $15 520 (+ 30 -1400 -2000 + 420 -20)
b) Share of residual profit: Archer $2010; Bowman $2010
Question: 6 Lee Kim and Michael

Total capital on 1 Oct 2005 = 240 000 + 210 000 +150 000 + 190 000 + 50 000 +80 000 = 920 000
Total capital on 30 Sept 200 = 750 000 +660 000 + 390 000 – 346 000 – 285 000 = 1 169 000
Total capital on 30 Sept 2007 = 870 000 + 690 000 + 420 000 – 404 000 – 255 000 = 1 321 000
Total capital on 30 Sept 2008 = 1 200 000 + 825 000 +495 000 – 448 000 – 375 000 = 1 697 000
Total drawings 2006 = 45 000 + 42 000 + 36 000 + 45 000 = 168 000

Total drawings 2007 = 70 000 + 48 000 + 30 000 +60 000 = 208 000
Total drawings 2008 = 105 000 + 105 000 + 8 000 + 65 000 = 283 000
Calculation of profit
2006 2007 2008
Capital at end of year 1 169 000 1 321 000 1 697 000
Add drawings 168 000 208 000 283 000
Less capital introduced - - (180 000
Less capital at start (920 000) (1 169 000) (1 321 000)
Profit for the year 417 000 360 000 479 000
Closing balance capital account of Michael: 2006 $150 000; 2007 $150 000; 2008 $210 000
Share of residual profit for Michael: 2006 = 1/6 x (417 000 – 45 000) = 62 000
2007 = 1/6 x (360 000 – 60 000) = 50 000
2007 = 1/6 x (479 000 – 65 000) = 69 000
Closing balance current account of Michael: 2006 $106 000; 2007 $126 000; 2007 $187 000
Question: 7 Rahul and Shivam
a) Rahul $80 000; Shivam $40 000
b) Cost of sales $603 000; Gross profit $213 000; Profit for the year $101500.
c) Share of profit Rahul $23 000; Shivam $11 500

Balance current account Rahul $46 500
Question 8 Boris and Cheong

Boris Cheong
$ $
Closing balances 9 908 22 092
Int. on drawings 1 320 1 200
Drawings 22 000 20 000
33 228 43 292
Int. on capital (8 000) (7 200)
Profit (23 728) (35 592)
Opening balances 1 500 ( 500
(b) $
Original net profit 72 000
Depreciation (14 400)
Loss on disposal (500)
Sales 10 500
Discount received 600
Drawings 3 400
Bad debt (500)
Recovery bad debt 210
Provision for doubtful debts (945)
Corrected net profit 70 365
c) Share of residual profits B $37 558; C $25 039

d Balance current account B $17 626 Cr; Cheong $9 339 Cr
Question 9 Carl and Daniel

Revenue $376 382; Purchases $196 202; Cost of sales $196 734; Gross profit $179 648; Total expenses $138 958;
Profit for the year $46 690; Share or residual profit for Carl $20 292 and Daniel $13 528
Balance current account for Carl $6388 Dr and Daniel $4548 Dr
Question 10 Alice and Nancy

NCA at 30 Sept 99 = (132 000 – 6000 + 48 000) x 87.5 % = 152 250
Total capital = Assets – liabilities
= 152 250 + 258 000 + 50400 – 70 000 – 13 000 – 27 000 – 72 000 = 278 650
Profit = Capital at end + drawings – capital at start

= 278 650 +50 400 – 223 000 = 106 050
b) Share of residual profit Alice $36 250; Nancy $50 000 ( she should get a minimum of $ 50 000, if the residual
profit is shared equally she will get less)
Balance current account $Alice $54 850; Nancy $43 800
c) NCA $152 250; CA $308 400 (258 000 + 50400); CL $134 000 (70 000 + 13000 + 27000 + 24 000);
NCL $48 000;
Chapter 12: Dissolution of Partnership
Question 1: Thomas, Dickson and Harry
Share of realisation loss Thomas $4000; Dickson $2000; Harry $1000
To close capital account business has to pay Thomas $31 000, Dickson $11 000 and Harry
$50001111111111111
Question 2 Paul, Stuart and Dev

a) Share of realisation loss: Paul $1839; Stuart $1226; Dave $1226
b)
Capital account
P S D P S D
Current a\c - 5257 - Bal b\d 51 000 34 000 34 000
Loss on realisation 1839 1226 1226 Current a\c 18390 - 6233
Realisation: Vehicle 19750 - - Loan - - 7160
Inventory - 4640 - Interest - - 537
Bank 47801 22877 46704
69390 34000 47930 69390 34000 47930
c)
Bank account
Bal b\d 3070 T.Payables and expenses 9005
Realisation: NCA 110000 Dissolution cost 7050
Inventory 8895 Capital: Paul 47801
T.Receivables 11472 Stuart 22 877
Dave 46704
133437 133437
Interest on loan = 5 % x 7160 x 18/12= 537

Cost of inventory taken by Stuart 0.8 x 5800 = 4640
Cash received from sale of remaining inventory = 75 % x (16 500 – 4640) = 8895
Question 3 Kevin, Dev and Dick

Share of realisation loss Kevin $13 737; Dev $9158; Dick $4579
Capital account
Kevin Dev Dick Kevin Dev Dick
Realisation 15000 - - Bal b\d 13000 1900 12000
Loss on realization 13737 9158 4579 Loan - - 30000
Capital Dev 3774 - 3484 Capital Kevin - 3774 -
Bank - - 33937 Capital Dick - 3884 -
Bank 19511 - -
32511 9158 42000 32511 9158 42000
Amount owing to business by Dev = 9158 -1900 = 7258

Since he is insolvent this sum will have to be contributed by Kevin and Dick in proportion of their capital
account balances.
Amount to be contributed by Kevin = 13 000 ÷ 25 000 x 7258 = 3774
Amount to be contributed by Dick = 12 000 ÷ 25 000 x 7258 = 3484
Bank account
Bal b\d 800 trade payables 7274
Realisation (property) 25000 Realisation (dissolution exp) 8300
Realisation (T.Receivables) 4200 Capital Dick 33937
Capital Kevin 19511
49511 49511
Question 4 Paul and Sandeep
Share of realisation loss Paul $ 2400; Sandeep $240
To close capital account, business has to pay $53 000 to Paul and $4 300 to Sandeep.
Question 5: Angela, Belinda, Cindy

Assume shares are divided between partners using PSR
Selling price of Business =$330 000
Profit on Realisation A =$30 000
B =$20 000
C =$10 000
Question 6: Chang,Foo and Seet

Profit on Realisation C =$12 000
F =$8 000
S = $4 000
Capital A\c : Chang to pay business $89 500

Business to pay Foo =$55 000
Seet = $37 000
Question 7 Dough, Ray and Mee

Loss on Realisation D =$8400
R =$5600
M = $2800
Capital A\c : Mee to pay business $25800

Business to pay Dough=$48600
Seet = $4400
Question 8 Anton, Bassini and Cartwright

a) Share of loss on realisation A $27 700; B $13 850; C $13 850
To close capital account business has to pay A $85 832; B $39 273; C $33 995
(b) Option 1 200 000 × 6% = 12 000
Option 2 80 000 × 0.15 = 12 000
(c) Both options give the same annual return.

Option 1 is fixed. Option 2 may fluctuate (depending on profit).
Option 2 gives ownership rights and voting rights.
Debentures are safer investment.
Question 9 Akram, Bhupesh and Chuck

a) Total expenses $349 000; Profit for the year $34 000; Share of residual loss A $1320; B $880; Share of
residual profit C $7200 (minimum share of resisual profit)
b) Current account balances A $9720 Dr; B $680 Dr; C $1400 Cr
c) To close capital account business has to pay Chuck $9400 whereas Akram and Bhupesh has to pay the
business $3520 and $9880 respectively.
Question 10 Joel and Pooja

Profit on realisation Joel $16 000; Pooja $16 000
To close bank account, business to pay Joel $49 500 and Pooja $46 000
Question 11 Nursultan Katia and Avtandil

Eratum balance current account for Nursultan should be $5 350 Dr instead of $350 Dr
(a) A debit balance on a current account arises when a partner has withdrawn more money than he is
entitled to and is therefore in debt to the partnership.
(b) A partnership may be dissolved
– as the partners are constantly in disagreement and can no longer work together.
– as the partnership is no longer liquid and further trading would increase the debt.
– as the partnership is no longer profitable
– as a partner wishes to set up on his own, or a partner dies or retires.
c) Share of Loss on realisation Nursultan $8940; Katia $5960; Avtandil $2980

To close capital account, business has to pay Katia $20290 and Avtandil $40 000 whereas Nursultan has to
pay business $4290
d) Capital brought by Avtandil = 17 000 + 19120 = 36120

Capital brought by Damir = 36120 ÷ 3 x 2 = 24 080
Number of shares Avtandil = $36 120 ÷ $0.5 = 72 240
Number of shares Damir = $24 080 ÷ $0.5 = 48 160
Chapter 13: Structural Change in Partnerships
Question 1: Nelson and Aliya

a) Bal c\d: Nelson $55 000, Aliya $50 000, Betty $35 000
Total Non-current assets $90 000; total Current Assets $41 350; Total current liabilities $2790
b) Bal c\d: Nelson $41 000, Aliya $36 000, Betty $28 000
Total Non-current assets $75 000; total Current Assets $41 350; Total current liabilities $2790
Question 2: Melina and Audrey

a) Capital account
M A C M A C
Bal b\d 13000 14000 -
Bank - - 22500
Bal c\d 23400 16600 22500 Revaluation gain 10400 2600 -
23400 16600 22500 10400 2600 22500
Total goodwill at the time of structural change = Carla’s share of goodwill x her PSR
= 2500 x 6 = 15 000
Revaluation gain = 9000 – 7000 – 600 - 400 + 12 000 = 13 000
NCA $70 000; CA $26 000; CL $2500; NCL $31 000
b) Capital account
M A C M A C
Goodwill cancel 7500 50002500 Bal b\d 13000 14000 -
Bank - - 22500
Bal c\d 15900 11600 20000 Revaluation gain 10400 2600 -
23400 16600 22500 10400 2600 22500
Question 3: George, Smith and Tom

a) Revaluation gain = 143 000 – 13 000 – 9000 – 1000 = 120 000
Capital A/c Balance c\d
G- $145 333
S- $139 333
T- $65 344
Total NBV of NCA= $291 000

Total Current Liabilities=$ 22 100
b) Capital account
G S T G S T
Revaluation cancel 60000 40000 20000 Bal b\d 95000 80000 55000
Goodwill cancel 27000 18000 9000 Revaluation gain 53333 53333 13334
Bal c\d 85333 99333 45334 Goodwill 24000 24000 6000
172333 157333 74334 172333 157333 74334
Total NBV of NCA= $170 000

Total Current Liabilities=$22 100
Question 4: Gerard, Bert and John

Balance Capital A/c –G 30 500
B 22 000
Paid to John 26 500
Share of Residual Profit
Jan-Sep Oct-Dec
G 31 387.5 11 655
B 20 925 7 770
J 10 462.5 -
Balance Current A/c

G =$41 482.5
B =$29 080
Paid to John =$10 437.5
Question 5: Pascal, Jane and Michel
a) Balance capital account Pascal $62 000; Michel $4000

Amount transferred to loan account for Jane $68 000
b) Total NBV of NCA $130 000

Total Current Assets $28 000 (1000 + 27 000)
Total Current Liabilities $92 000 (24 000 + 68 000)
Question 6: James and Susan Mokobi

a) Balance on current account at 30 April 2005 James $5600 Cr; Suzan $3650 Dr
b) Balance on capital account on 1 Nov 2005 James $41 000; Suzan $32 000; Anna $24 000
Profit and loss Appropriation account for the year ended 30 April 2006
May – Oct Nov – April
Less Appropriation
Interest on Capital: James 525 2050
Suzan 300 1600
Anna - 1200
Salary suzan 3500 4325 - 4850
Residual profit 33175 32650
Share of Residual profit James 16 587.5 21766
Suzan 16587.5 5442
Anna - 5442
Note: Rate of interest on drawings for old partnership = 300 ÷ 6000 x 100 = 3 % (since there is no drawings
given for the year ended 30 April 2006, this means that there is no drawings for the year and there will be no
interest in appropriation account)
Rate of interest on capital for old partnership= 1050 ÷ 35 000 x 100 = 3 %
Question 7: Frank and Ernest
b)Balance Capital A/c F- $76 800
E - $118 400
D- $188 500
a) Total NBV of NCA $327 300

Total Current Assets $127 800
Total Current Liabilities $22 400
Question 8:Ryan and Lam
a) Capital account balances Ryan $370 000; Lam $380 000; Cinderella $200 000
b) Share of residual profit Jan – June July – Dec
Ryan 80 000 22 500
Lam 80 000 22 500
Cinderella - 22 500
c) Current account balances Ryan $96 400 Cr; Lam $109 900 Cr; Cinderella $23 500 Cr
Question 9: Anna and Dora

a) Balance capital account Anna $52 500; Dora $77 500
b) Share of residual profit Oct – Dec Jan – Sept
Anna 1125 1860
Dora 1125 7440
c) Current account balances Anna $18 960 Cr; Dora $19 040 Cr
Question 10: Ben and Josie

a) Capital account balances Ben $63 000; Josie $45 000; Melvyn $24 000
b) Capital account balances Ben $17 100; Josie $51 300; Melvyn $34 200
Ben should withdraw $37 228 whereas Josie and and Melvyn should introduced $17 914 and $19 314 respectively
(c) Current accounts

B J M B J M
Balance b/d 1 000 Balance b/d 4 000
Drawings 18 000 17 000 16 000 Profit 12 300 8 200 8 200
Salary 4 000
Interest 684 2 052 1 368
Profit 699 2 098 1 399
Balance c/d 5 317 650 1 033
19 000 17 000 16 000 19 000 17 000 16 000
Question 11: Eleni and Gianna

ai) Share or residual profit: Eleni $12 000; Gianna $6 000
aii) Bal on Current account: Eleni $500 Cr; Gianna $900 Cr
bi) Dr Vehicle $8000,Dr Inventory $7500, Dr Bank $9500, Cr Capital $25 000
Dr Capital Gianna $4000, Dr Capital Michalis $12 000, Cr Capital Eleni $16 000
Bii) Total NBV of NCA= $62 000; Total Current Assets =$72800; Total Current Liabilities=$58400; Capital Eleni
$46 000; Capital Gianna $16 000; Capital Michalis $13 000
Question 12: Alan, Brian and Clive

a) Capital account Balances A $75 500 9transferred to current a\c); B $38 000; C $6000; D $17 000
Share of residual profit July – Dec Jan – June
A 5963 -
B 3975 8585
C 1987 4292.5
D - 4292.5
b) Current a\c balances A $93590 (paid through bank account); B $12 822 Dr; C $9042.5 Cr; D $4802.5 Cr
Question 13: Ahmed, Bola and Chaudhry
a) Capital accont Balances Ahmed $65 000; Bola $62 000; Chaudhry $77 000
b) Profit for the year $144 000 (38 500 x3 - 1340 + 5040 + 4800 + 6000 + 14000)
Share of residual profit April to September 2007 Ahmed $15 193; Bola $15 193; Chaudhry $15 194
Share of residual profit October 2007 to March 2008 Ahmed $35 360; Bola $23 573; Chaudhry $11 787
c) Current account balances Ahmed $33 839 Cr; Bola $1217 Cr; Chaudhry $14 444
Question 14: Brad and Rob

a) Share of revaluation gain (including increase in value of goodwill) Brad $39 400; Rob $19 700
Balances on capital account Brad $121 400; Rob $67 700; Buzz $25 000
b) Balances on capital account Brad $91 400; Rob $52 700; Buzz $10 000
c) Balance sheet under (a) NCA $215 000; CA $32 760; CL $4660; NCL $29 000
Balance sheet under (b) NCA $155 000; CA $32 760; CL $4660; NCL $29 000
Question 15: Ali and Ben
Revenue $320 000; Opening inventory $32 000; Purchases $210 000; Closing inventory $34 000; COS $208 000; GP $
112 000
April – Dec Jan – Mar
G.Profit 84 000 28 000
Rent and rates 7650 2550
Salaries 10950 3650
Gen expenses 10500 3500
Depreciation 9000 3000
Interest on capital A 5625 1975
B 2250 800
C - 375
Salary Carl - 2500
Residual profit 38 025 9650
Share of profit\ losss A 25350 (10370)
B 12675 2895
C - 17125
Carl’s share of residual profit should be $17 125 (20 000 – 375 – 2500) minimum share of total profit $20 000
Ben’s share of residual profit for Jan to Mar = 3/10 x 9650 = 2895
Ali’s share of residual loss for Jan to Mar = 9650 – 2895 – 17125 = 10370
Capital account
A B C A B C
B\d 75000 30000 -
C\d 79000 32000 15000 Bank - - 15000
Goodwill 4000 2000 -
79000 32000 15000 79000 32000 15000
Current account
A B C A B C
Interest on cap 7600 3050 375
Drawings 30000 20000 4000 Salary - - 2500
Salary paid 2500 Share or R.profit 14980 15570 17125
Bal c\d 13500 Bal c\d 7420 1380
30000 20000 20000 30000 20000 20000
c) NCA $24 000; CA $133700 (34 000 + 27000 +800 +71900); CL $27 000
Question 16: Kevin and Aniel
a) Share of residual profit Kevin $22 250; Aniel $11 125
b) Current account balances at 31 Oct 2007 Kevin $2490 Cr; Aniel $1135 Cr – transferred to capital account
c) Revaluation gain = $51 000 (53 000 – 1300 – 500 – 200)
200 is the decrease in the value of vehicle taken over by Aniel
Closing balances in capital account should reflect PSR: Kevin 3/5 x120 000 = 72 000
Adam 1/5 x 120 000 = 24 000
Carl 1/5 x 120 000 = 24 000
Capital account
Kevin Aniel Adam Carl Kevin Aniel Adam Carl
Vehicle - 4800 - - Bal b\d 40000 25000 - -
Goodwill 27000 - 9000 9000 Goodwill 30000 15000 - -
Bank 5000 53335 - - Revaluation gain 34 000 17000 - -
Bal c\d 72000 - 24000 24000 Current a\c - 1135 - -
Bank - - 33000 33000
d) Share of residual profit Kevin $17910; Adam $5970; Carl $5970

e) Current account balances at 30 April 2008 Kevin $650 Cr; Adam $1540 Cr; Carl $30 Dr
Question 17: Alex and Brian

a) Balances on capital account Alex $104 000; Brian $58 000; Cindy $3 000
b) Income statement and Appropriation account
Oct – May June – Sept
Gross profit 100 000 50 000
Admin exp – Salary cindy 12 000 -
Other 26 000 13 000
Depreciation 4 500 2 000
Share of residual profit: Alex 34 500 10 160
Brian 23 000 10 160
Cindy - 5080
c) Balances on current account Alex $17 820; Brian $12 480; Cindy $3 200
d) NCA $183 500 (150 000 + 33 500); CA $74 000; CL $59 000
Question 18: Poppy and Rose
a) Capital account balances P $182 500; R $127500

b) Total current account balances at end 32 900 (26 350 + 6550)
Add Total drawings 39500 (9000 + 12000 + 7500 +11 000)
Less Total (Net) current account balances at start 6400 (8500 -2100)
c) Share of residual profit Jan – June July – Dec

P 7770 (180)
R 7770 (120)
d) Corrected current account balances P $26195; R $6705
Question 19: Ong and Tan

1 Dr Bank A\c $200 000, Cr Capital A\c Kaw $200 000
2 Dr Goodwill $180 000, Cr Capital A\c Ong $108 000, Cr Capital A\c Tan $72 000 (record goodwill)
Dr Capital A\c Ong $60 000, Dr Capital A\c Tan $60 000, Dr Capital A\c Kaw $60 000, Cr Goodwill A\c $180 000
(cancel goodwill)
3 Dr capital A\c Ong $188 000, Dr Capital A\c an $42 000’ Cr Bank A\c $230 000
b) Jan to June share of residual profit Ong $28 500, Tan $19 000
July to Dec share of residual profit Ong $17 167, Tan $17167, Kaw $17166
Question 20: Bryan and Celina
a) Capital at end 60000
Add drawings 40000 (17 000 + 23 000)
Less capital at start (50000) (20 000 + 30 000)
b) Closing balance on capital account Bryan $50 000; Celina $63 000; Diksha $40 000
c) Jan to June share of residual profit Bryan $22 500; Celina $22 500
July to Dec share of residual profit Bryan $19 200; Celina $12 800; Diksha $6400
d) Closing balances on current account Bryan $1950 Cr; Celina $2110 Cr; Diksha $2060 Dr
Chapter 14 Company internal use

Question 1 Babylon
SOCIE – Bal at end: O.Share $1 200 000; S.Premium $190 000; R.Profit $1 554 000
Question 2 Peter Jordan

a) Profit for the year $558 860
b) SOCIE – Balance at end: O.Share $1 500 000; P.Share $200 000; S.Premium $150 000;
G.Reserve $50 000; R.Profit $567 460.
c) Total NBV of NCA $2 396 500; Total C.Assets $341 760; Total C.Liabilities $170 800;
Total NCL $100 000
Question 3 IBX
a) 1. Dr Bank $90 000, Dr S.Premium $10 000, Cr Debentures $100 000.
2. Dr Prov For dep (property) $120 000, Cr Property $50 000, Cr R.Reserve $70 000.
Dr Prov for dep (plant and equipment) $40 000, Dr Income statement $15 000,
Cr Plant and Equipment $55 000.
3. Dr Bank $165 000, Cr O.S capital $75 000, Cr S.Premium $90 000.
4. Dr R.Reserve $70 000, Dr S.Premium $80 000, Cr O.S capital $150 000.
5. Dr Ordinary dividend $18 750, Dr Preference dividend $12 000, Cr Bank $30 750.
b) SOCIE – Bal at end; O.Share $525 000; P.Share $150 000; S.Premium $50 000; R.Reserve nil;
R.Profit $39 250
Question 4 Worrifree
a) Cost of sales $270 000; Gross profit $700 000; Profit for the year $106 000
SOCIE – Bal at end; O.Share $400 000; G.Reserve $10 000; R.Profit $92 000
b) Total NBV of NCA $628 000; Total C.Assets $314 000; Total C.Liabilities $95 000;
Total NCL $345 000
Question 5 Don Ltd

a) Cost of sales $177 000; Gross profit $217 000; Profit for the year $75 200
SOCIE – Bal at end; O.Share $50 000; P.Share $200 000; G.Reserve $60 000; R.Profit $32 500
b) Total NBV of NCA $306 000; Total C.Assets $126 800; Total C.Liabilities $40 300;
Total NCL $50 000
Question 6 Piriton Ltd

a) Cost of sales $1 438 000; Gross profit $1 554 000; Profit for the year $525 800
SOCIE – Bal at end; O.Share $400 000; Share premium $80 000; G.Reserve $320 000; R.Profit $265 800
Total NBV of NCA $1 184 000; Total C.Assets $146 800; Total C.Liabilities $265 000;
Total NCL $345 000
Question 7 Central Retailers Ltd
a) Cost of sales $2 635 000; Gross profit $565 000; total expenses $502 000; Profit before interest $ 75 000 Interest
$15 0000; Profit for the year $60 000
SOCIE – Bal at end: O.Share $275 000; P.Share $100 000; Revaluation Reserve $120 000; G.Reserve $9 000; R.Profit
$59 000; Total $644 000
b) NBV of Property $343 000; NBV of P& Equipment $240 000; Total C.Assets $441 000; Total C.Liabilities $230 000;
Total NCL $150 000
Question 8 Benylin
O.Share S.Premium R.Reserve G.Reserve R.Earnings
Bal on 1 Jan 2007 1 600 000 250 000 140 000 - 240 000
Revaluation gain - - 60 000 - -
Bonus issue 400 000 (200 000) (200 000) - -
Expenses on B.issue - (25 000) - - -
Rights issue 250 000 125 000 - - -
Profit for the year - - - - 130 000
O.Dividend paid - - - - (125 000)
Transfer to G.Reserve - - - 40 000 (40 000)
Bal on 31 Dec 2007 2 250 000 150 000 0 40 000 205 000
Chapter 15 Company Publication
Question 1 Travic Ltd
a) Cost of sales $192 000; Gross profit $153 000; Distribution cost $41 950; Administrative expenses $13 000; Other
operating income $5 000; Loss on disposal $2 000; Profit on discontinued operations $7 000; Operating profit $108
050; Investment income $19 000; Finance charge $15 000; Tax $22 000; Profit for the year $90 050
b) SOCIE balance at end: O.Share $525 000; P.share $100 000; S.Premium $5 000; R.Reserve $95 000; G.Reserve $60
000; R.Profit $93 050; Total $878 050
c) Total NBV of NCA $935 050; Total CA $138 000; Total CL $45 000; Total NCL $150 000
Question 2 Ashbourne plc
a) Cost of sales $4 291 000; Gross profit $2 925 000; Distribution cost $1 485 000; Administrative expenses $1 098
000; Operating profit $342 000; Finance cost $160 000; Profit for the year $182 000
b) SOCIE balance at end: O.Share $5 000 000; S.Premium $2 500 000; R.Reserve $1 000 000; R.Profit $189 000; Total
$8 689 000
Total NBV of NCA $8 122 000; Total CA $2 966 000; Total CL $399 000; Total NCL $2 000 000
Question 3 Hamilton Ltd

a) Gross profit $781 000; Operating profit $94 000; Finance cost $12 000; Profit for the year $80 000
SOCIE Balance at end: O.Share capital $300 000; P.Share $100 000; General reserve $10 000; R.Profit $130 000;
Total $460 000
bi) Income gearing 2005 9.23 % and 2006 10 %

ii) EPS 2005 $0.14 and 2006 $0.16
iii) P\E ratio 2005 9.64 times and 2006 10 times
iv) DPS 2005 $0.0333 and 2006 $0.025
v) Dividend yield 2005 2.47% and 2006 1.56 %
vi) Dividend cover 4.15 times and 2006 5 times
Question 4 United Ltd
a) Revenue $1 192 000; Cost of sales $450 000; Gross profit $742 000; Distribution cost $284 700; Administrative
expenses $248 100; Other operating income $30 200; Profit for the year $109 400
b) SOCIE balance at end: O.Share $600 000; S.Premium $150 000; G.Reserve $219 000; R.Profit $32 400
c) Total NBV of NCA $896 800; Total CA $292 600; Total CL $188 000
Question 5 Kitz Ltd

a) Revenue $1 186 000;Cost of sales $358 000; Gross profit $828 000; Distribution cost $292 100 (190 000+ 5000 +
72 500 + 15 600 + 9000); Administrative expenses $223 500 (150 000 – 6800 + 12 000 – 14 000 + 800 + 72 500 +
9000); Other operating income $33 400; Operating profit $345 800; Tax $120 000; Profit for the year $225 800
b) SOCIE balance at end: O.Share $500 000; S.Premium $100 000; G.Reserve $180 000; R.Profit $132 800
c) Total NBV of NCA $840 600; Total CA $245 200; Total CL $173 000
Question 6 Busby Ltd

a) Revenue $1 494 700;Cost of sales $298 500; Gross profit $1 196 200; Distribution cost $273 800 (76 000+
8400+115 000+ 62 000+12400); Administrative expenses $205 400 (84 000 - 10 200 +115 000 + 12 400 + 4200 - 2300
+ 2300); Other operating income $16 200; Operating profit $733 200; Tax $148 000; Profit for the year $585 200
b) SOCIE balance at end

Ordinary share capital $1 200 000; Share Premium $600 000; Revaluation Reserve $200 000; General Reserve $150
000; Retained Profit $338 200
c) Total NBV of NCA $2 456 200; Total CA $220 400; Total CL $188 400
Question 7 Poland Ltd

a) Revenue $620 000;Cost of sales $430 000; Gross profit $190 000; Distribution cost $55 950
(6000+11200+4000+28000+2000+1750+3000); Administrative expenses $54 650 (40 000
+600+1000+6300+2000+1750+3000);Operating profit $69 400; Investment income $18 000; profit before
interest $87 400; Finance charge $9600; Tax $5500;Profit for the year $72 300
b) b) SOCIE balance at end
Ordinary share capital $100 000;Non Redeemable Preference share capital $30 000; Share Premium $7 500;
Revaluation Reserve $40 000; General Reserve $23 000; Retained Profit $97 300
c) Total NBV of NCA $273 500; Total CA $171 200; Total CL $51 900; Total NCL $95 000
Question 8: LDH Ltd

$
Gross Profit 16 032
Operating Profit 4 368
Total NBV of NCA 12 046

Total C.Assets 12 031
Total C.Liabilities 3 860
Total NCL 9 200
Ordinary share Capital 5 000

10% non-redeemable P.share 200
Reserves 5 817
Question 9 Togo Ltd
a) Revenue 3 150 000

Cost of Sales 1 958 700
Distribution cost 439 600
Administration cost 484 100
Non- recurring: Revaluation loss 19 000
Loss on disposal 55 000
Investment Income 15 000
Finance cost: Interest on loan 7 200
Redeemable Preference dividend 15 000
b) sOCIE Balance at end – Ordinary share 450 000

Preference share 100 000
Share Premium 412 500
CRR 30 000
Retained profit 331 700
General Reserve 60 000
c) Total NBV of NCA 1 057 600

Total Current Assets 669 000
Total Current Liabilities 182 400
Total NCL 160 000
Net assets 1 384 200
Question 10 Vivic Ltd
a) Revenue 12 550 000

Cost of Sales 6 650 000
Distribution cost 3 210 700 (2800 000 + 3897 000 + 21 000)
Administration cost 2 545 300 (2 260 000 + 259 800 +14 000 + 11 500)
Other operating income 590 000
Non- recurring
Inpairment 170 000
Profit on disposal 150 000
Loss on discontinued operations 1 980 000
Operating loss 1 266 000
Investment Income 460 000
Finance cost: Interest 60 000
Tax 57 000
Loss for the year 923 000
b) SOCIE Balance at end – Ordinary share 800 000

Revaluation Reserve 640 000
Retained earnings (223 000) Losses
c) Total NBV of NCA 1 795 500 (1000 000 + 665 000 + 30 500 + 100 000)
Total Current Assets 1 348 500 (440 000 + 598 500 +310 000)
Total Current Liabilities 1 127 000 (720 000 + 10 000 + 57 000 + 340 000)
Total NCL 500 000
Net assets 1 517 000
Chapter 16 International Accounting Standards
Question 1 O’Really Ltd
a) 1 IAS 38; 2 IAS 36; 3 IAS 2; 4 IAS 16; % IAS 37
b) $311 880 (367 500 – 50 000 – 220 – 5000 – 400)
c) Property $745 000; Other tangible assets $710 000; Goodwill $130 000; Inventory $59 780; trade receivables $7
600 (8000 – 400); Cash and cash equivalent $14 000; Current liabilities $42 000; O.share capital $750 000; P.Share
capital $250 000; S.Premium $62 500; R.Reserve $250 000; Retained Profit $311 880
Question 2 Megrand Ltd

a) IAS 38; IAS 36; IAS 16; IAS 37; IAS 2.
b) $1 214 495 (1 280 000 – 15000 - 50 000 – 480 -25)
c) Property, Plant and Equipment $3 635 000 (3 200 000 – 15 000 + 500 000 – 50 000); Inventory $119 975; Trade
receivables $15 520; Cash and cash equivalent $28 000; T.payables $84 000; O.Share capital $2 000 000; R.reserve
$500 000.
Question 3 Cobra
Item 1: IAS 2 Inventories

Item 2: IAS 38 Intangible assets
Item 3: IAS 10 Events after the reporting period (balance sheet date)
Item 1: IAS 2 states that inventories should be valued at the lower of cost and net realisable value. The net realisable
value would be the selling price of $62 400 less the cost to convert the inventory of $12 500 = $49 900. As the
NRV is lower than cost then $2100 ($52 000 – $49 900) would be deducted from inventories in current assets and
also deducted from retained earnings. This is an application of prudence
Item 2: IAS 38 states that the patent cost of $62 000 represents a purchased intangible asset which is recognised in
the financial statements at cost price. It is capitalised in the balance sheet if this cost can be reliably measured and if
there are probable future economic benefits. If the patent has a finite life then it can be written down via
amortisation . If instead it has an indefinite life then it is not amortised.
Item 3: IAS 10 states that if material events exist at the balance sheet date and if the outcome is known before the
accounts have been approved then the impact can be adjusted in the financial statements. $35 000 would be
deducted from trade receivables in current assets and also deducted from retained earnings
Question 4 Wiles Ltd
Situation 1:
IAS 8 Accounting policies, changes in accounting estimates and errors.
A change in the depreciation method would usually be against the concept of consistency and so would not be
recommended. However, if the change would lead to more reliable and relevant information, then the change would
be appropriate in this circumstance. The previous year’s figures and this year’s figures in the financial statements
would need to be restated to assist with comparability. This would affect the depreciation charge both in the income
statement and the statement of financial position (balance sheet).
Situation 2:
IAS 10 Events after the reporting period.
The flood happened after the year end date and so would be classified as a non-adjusting event even though the
financial statements may not have been approved by the board of directors. No adjustment is therefore made to the
financial statements for the year end. However, if the impact of the event is deemed to be material then the event
details will be disclosed in the notes to the financial statements. In this case, the event nature and an estimate of the
financial impact will be shown
Situation 3:
IAS 37 Provisions, contingent liabilities and contingent assets.
The restructuring represents a current obligation as a result of a past event. Provided that a reliable estimate can be
made of the probable outflow of economic benefits then the change needs to be recognised in the financial
statements as a liability , due to the fact that there is more than a 50% likelihood of the event occurring . The cost of
the restructuring would therefore be shown as a cost in the income statement and also as a liability in the statement
of financial position (balance sheet).
Situation 4:
IAS 36 Impairment of assets.
A fall in the market value of the land and buildings is due to an external indication that impairment has occurred. If
the market value, which is the recoverable amount, is less than the carrying amount or net book value then an
impairment loss exists. The non-current assets are reduced to this recoverable amount in the statement of financial
position (balance sheet) and is also recognised as an expense in the income statement.
Chapter 17 Business financing

Question 1 Allion Ltd
Option 1 Interest payable p.a. 25 000
Option 2 Debenture interest p.a. 56 000
Option 3 Dividends paid p.a 54 000
These figures may be incorporated in the analysis.
Option 1 is the cheapest and the loan will be paid off in only 4 years. It will deplete cash by $250 000 each year but
can the company afford to pay this; risk of default
plus development; evaluation of effect on cash flows ; evaluation of effect on profits .
Option 2 is the most expensive from the interest point of view but the interest payable will reduce in real terms over
the years. The interest must be paid whether profits are made or not. Capital sum repayable in 2035 but until then
no repayments of capital; risk of non payment of interest plus development; evaluation of effect on cash flows
evaluation of effect on profits.
Option 3 provides permanent capital and although dividends of 2.7 cents per share will be paid, the Directors have
the choice not to pay if the profits are insufficient to warrant non payment or they may wish to pay less than the
current rate. This option will keep ownership in the hands of current shareholders unless a significant number of
existing shareholders sell their rights to the shares. Risk of non payment of dividend plus development; evaluation of
effect on cash flows evaluation of effect on profits
Chapter 18 Financial analysis

Question 1 Candy Ltd
a) 1- 66.67 %; 2- 40 %; 3- 13.33% ; 4- 10.14 % ; 5- 12.59 % ; 6- 9.59 % ; 7- 3.83:1 ; 8- 2.85:1 ; 9- 4 % ; 10- 2.33 times ;
11- $0.175 ; 12- 10.29 times ; 13- $0.075 ; 14- 4.17 % ; 15- 26.45 % ; 16- 300 % or 3 times
Question 2 Manny Kyoor

a) 1- 30 %; 2- 15.16 % using NPBI or 13.1 Using NPAI ; 3- 1.87:1 ; 4- 0.456:1 % ; 5- 5 times or 73 days ; 6- 218.75 % ; 7-
21.4 % ; 8- 43.9 % using NPBI or 22.83 % using NPAI ; 9- 22.42 days ; 10- 27.38 days
Question 3 Ferdi Nand

Purchases $344000; Closing inventory $64000; Cost of sales $360000; Gross profit $120000; Profit for the year
$72000
Cost of NCA $400000, Acc dep $160000; Cash and cash equivalent $6000; Trade payables $110000; Capital $242000;
Drawings $24000
Question 4 Sania
Gearing 57.57%
Earnings per share (EPS) $0.15
Dividend per share $0.04
Dividend yield 5%
Dividend cover 3.75 times
Price/earnings ratio 5.33 times
Question 5 Lucky and Sad
i) Gross profit margin 66.67 %

ii) Net profit margin 20.515 %
iii) Return on capital employed 12.07 %
iv) Current ratio 1.9:1
v) Acid test ratio 1.4:1
vi) Trade receivables collection period 74.606 days
vii) Trade payables payment period 131.08 days
viii) Inventory turnover 65.518 days
ix) Working capital cycle 9.044 days
x) Expense to sales ratio 46.15 %
xi) Income Gearing 12.59 %
xii) Gearing 15.19 %
xiii) Return on Equity 11.28 %
Question 6 M Porter
a) Revenue $262800; Purchases $184690; Cost of sales $210240; Gross profit $52560; Fixed Expenses $31536;
Variable expenses $7884
Total NBV of NCA $100000; Inventory $22265; Trade receivables $28800; Cash and cash equivalent $1307; Trade
payables $8602; Capital $140000.
b) Trade payables $15180; Cash and cash equivalent $24330; Capital $156445.
Question 7 Wayne
i) Dividend per share $0.08 per share
ii) Dividend yield 5%
iii) Dividend cover 2.5 times
iv) Earnings per share $0.2 per share
v) Price/earnings 8 times
bi) Bayern – higher DPS
bii) Topaz Higher P\E ratio
Question 8 Phoenicia Ltd

a) Revenue $381538; Purchases $254000; Cost of sales $248000; Gross profit $133538; Distribution cost $29251;
Administrative expenses $58502; NPBI $45785; Interest $18314; Profit for the year $27471
SOCIE – Balance at end O.S capital $125000; R.Profit $14971.
b) Ratio for Algebra: 1 – 64.52 %; 2 - $0.52; 3 – 4.807 times; 4 – 2.6 times; 5 - $0.2; 6 – 8 %
Ratio for Vectra: 1 – 75.95 %; 2 - $0.9; 3 – 3.611 times; 4 – 9 times; 5 - $0.1; 6 – 3.08 %
Question 9 Crust Ltd
2003 2004
1 16.5 % 13.4 %
2 10.9 % 11.6 %
3 14.5 % 12.07 %
4 2.33:1 2.33:1
5 1.51:1 1.41:1
6 3.89 % 7.49 %
7 22.3 % 36 %
8 $0.248 $0.266
9 10.1 times 11.3 times
10 0.17 0.2
11 6.8 % 6.7 %
12 1.46 times 1.33 times
Question 10 Orchard Ltd

Bee Cee
a) 1. 197.1 days 154.8 days
2. 73 days 61.41 days
3. 91.25 days 54.6 days
4. 178.85 days 161.61 days
5. 16.19 % 19.87 %
6. 28.57 % 28.89 %
7. 20.24 % 38 %
8. 16.19 % 24.55 %
9. 3.5:1 2.59:1
10 1.36:1 0.9:1
11. $0.38 per share $0.63 per share
Question 11 Lopez Ltd
a) Revenue $430 000; Purchases $219 000; Cost of sales $215 000; Expenses $150 500; Profit for the year $64 500
b) Total NBV of NCA $333 399; Trade receivables $32 986; Bank $10 614; Trade payables $19 200; Retained profit
$121 799
d) Dividend yield 4.03 %

Dividend cover 4 times
Dividend per share $0.03225
Earnings per share (EPS) $0.129
Price earnings ratio 6.2 times
Question 12 Sanaa Malik Eratum Average payment period is 40 days instead of 0 days
a) Purchases $555 000; Closing Inventory $60 000; Cost of sales $522 000; Gross profit $348 000;
Expenses $217 500; NPBI $130 500; Interest $6 000; Profit for the year $124 500
SOCIE – Bal at end: O.share capital $180 000; P.Share capital $50 000; Retained profit $196 233
b) Total NBV of NCA $435 000; Inventory $60 000; T.Receivables $53 630; Bank $38 425; T. Payables $60 822
c) income gearing 4.597 %; Gearing 28.5 %

Question 13 Sameer and Ryan
Sameer Ryan
ai) 50 % 60 %
aii) 25 % 40 %
aiii) 30 % 48 %
aiv) 3.6:1 1:1
av) 3:1 0.75:1
avi) 30.42 days 73 days
Question 14 Grist Plc

a) Operating profit $192 000; Finance charge $12 000; Tax $36 000; Profit for the year $144 000; Preference dividend
paid $12 000; Retained profit c\f $112 000
b) Net current assets $422 000; Debenture $200 000; O.Share $300 000; P.share $240 000; S.Premium $150 000;
G.Reserve $30 000; R.Profit $112 000.
c) Dividend cover 2.44 times; P\E ratio 11.36 times; Dividend yield 3.6 %; Gering ratio 42.6 %; ROCE 18.6 %
Question 15 Angus Sand
a) Inventory turnover 73 days

Gross profit to sales 30 %
Net profit to sales 12.5 %
Current ratio 1.22:1
Quick ratio 0.3:1
Return on equity 38.46 %
Return on capital employed 30.375 %
Gearing ratio 35 %
Earnings per share $0.625
Trade payables payment period 36.5 days
Trade receivables collection period 22.81 days
Working capital cycle 59.31 days
Chapter 19 Redemption of Shares and Debentures

Question 1 (a)
Dr Bank $15000, Cr O.S capital $15000
Dr P.S capital $10000, Cr Bank $10000
Net Assets (except bank) $45 000; Bank $20000; O.S Capital $45000; S.Premium $3000; R.Profit $17000.
Question 1 (b)
Dr P.S capital $10000, Dr R.Profit $1000; Cr Bank $11000
Dr Retained profit $10000, Cr CRR $10 000
Net Assets (except bank) $45 000; Bank $4000; O.S Capital $30000; CRR $10000; S.Premium $3000; R.Profit $6000.
Question 1 (c)
Dr Bank $11000, Cr P.S capital $11000
Dr P.S capital $10000, Dr S.Premium $2000, Cr Bank $12000
Net Assets (except bank) $45 000;Bank $14000; O.S Capital $30000; P.S capital $11 000; S.Premium $1000; R.Profit
$17000.
Question 1 (d)
Dr Bank $11000, Cr P.S capital $11000
Dr P.S capital $10000, Dr S.Premium $1500, Dr R.Profit $2500, Cr Bank $14000
Net Assets (except bank) $45 000; Bank $12000; O.S Capital $30000; P.S capital $11000; S.Premium $1500; R.Profit
$14500.
Question 1 (e)
Dr R.Profit $5000, Cr CRR $5000
Net Assets (except bank) $45 000; Bank $6000; O.S Capital $35000;CRR $5000; R.Profit $11000.
Question 1 (f)
Net Assets (except bank) $45 000; Bank $4700; O.S Capital $32500; S.Premium $500; CRR $7500; R.Profit $9200.
Question 1 (g)
Dr Bank $14000, Cr O.S capital $10000, Cr S.Premium $4000
Dr P.S capital $10000, Dr S.Premium $1300, Cr Bank $11300
Net Assets (except bank) $45 000; Bank $17700; O.S Capital $40000; S.Premium $5700; R.Profit $17000.
Question 2 (a)
Dr R.Reserve $75000 S.Premium $8000, Dr R.Profit $17000, Cr O.S capital $100000
Net Assets (except bank) $425 000; Bank $35000; O.S Capital $300000; P.S capital $40000; CRR $40000; R.Profit
$80000.
Question 2 (b)
Net Assets (except bank) $425 000; Bank $20000; O.S Capital $225000; R.Reserve $75000; CRR $55000; S.Premium
$8000 R.Profit $82000.
Question 2 (c)
Dr Bank $112500, Cr O.S capital $75000, Cr S.Premium $37500
Dr O.S capital $50000, Dr S.Premium $5000, Dr R.Profit $20 000,Cr Bank $75000
Net Assets (except bank) $425 000; Bank $112500; O.S Capital $225000; P.S capital $80000; R.Reserve $75000;
S.Premium $40500 R.Profit $117000.
Question 2 (d)
Dr R.Reserve $75000 S.Premium $5000, Cr O.S capital $80000
Dr P.S capital $50000, Dr R.Profit $15000, Cr Bank $65000
Net Assets (except bank) $425 000; Bank $10000; O.S Capital $280000; P.S capital $30000; CRR $50000; S.Premium
$3000; R.Profit $72000.
Question 2 (e)
Dr O.S capital $50000, Dr R.Profit $10000, Cr Bank $60000
Net Assets (except bank) $425 000; Bank $15000; O.S Capital $150000; P.S capital $80000; R.Reserve $75000; CRR
$50000; S.Premium $8000 R.Profit $77000.
Question 3 Hitman Ltd

NCA $1 420 000; Net current assets $495 000 (760+125-390); Ordinary shares $1 400 000; S.Premium $185 000
(220+25-60); CRR $175 000; R.Profit $155 000
Question 4 Paltex Ltd

b) Ordinary shares $700 000; CRR $100 000; R. Profit $103 000
Question 5 Westella Ltd

a) Dr Bank $55000, Cr O.S capital $44000, Cr S.Premium $11000
Dr P.s capital $100000, Dr R.Profit $5000, Cr Bank $105000
Dr Bank $198000, Dr S.Premium $2000, Debentures $200000
Dr Property $180000, Cr Bank $180000
b) Assets (except bank) $470 000; Bank $28000; Trade payables $25000; Debentures $200000; O.S capital $194
000; S.Premium $9000; CRR $45000; R.profit $25000
Question 6 Mirates Ltd

a) Net Assets $939 500 (960+32-52.5); O.Share $720 000; S.Premium $29 500 (20 +12 -2.5); CRR $18 000;
R.Profit $172 000
Question 7 Vital Ltd

a) Dr debenture $500 000; Dr S.Premium $75 000; Cr Bank $575 000
Dr Retained Profit $500 000; Cr DRR $500 000
b) Non-Current Assets $2 500 000; Net Current assets $925 000; O.Share $1 400 000; P.Share $600 000; S.Premium
$405 000; DRR $500 000; R.Profit $520 000
Question 8 Cosmic Ltd

a) Dr Bank $120 000, Cr O.share $100 000, Cr S.Premium $20 000
Dr Debenture $250 000, Dr S.Premium $50 000, Cr Bank $300 000
b) NCA $3 200 000; Net current assets $1 620 000; Redeemable P.share $350 000, O.Share $4 000 000; S.Premium
nil; R.Profit $470 000
Question 9 Rengaw
NCA $142 000; CA $112000; CL $72000; O.S capital $110000; S.Premium $15000; DRR $40000; R.Profit $17000
Question 10 Jupiter Ltd

NCA $2 900 000; Net current liabilities $200 000 (1100-520-780); Debentures nil; O.Share $1 200 000; P.Share $nil;
S.Premium $460 000 (480-20); CRR $600; R.Profit $440 (1220-180-600)
Question 11 Venus Ltd

Non-Current Assets $ 3 600 000; Net current assets $430 000 (900 – 220 + 270 – 520); Ordinary shares $3 400 000
(3200 + 200); Share premium $300 000 (250 – 20 +70); CRR $130 000; Retained profit $200 000 (450 - 120 – 130)
Question 12 Frog Log Ltd
Statement of Financial Position at 30 April 2011

$000 $000 $000
Non-current assets
Premises (530 – 5) 525
Other non-current assets (2 012– 270 + 20 - 112) 1 650
2 175
Current assets 1 610
Current liabilities
Convertible loan stock 2011 100
Trade and other payables (B.Figure) 545 645
965
3 140
Non-current liabilities
Debentures 200
2 940
Equity
Ordinary shares (1 000 + 50) 1 050
Share premium (750 + 100) 850
Revaluation reserve 280
Capital redemption reserve 100
General reserve (80 + 30) 130
Retained earnings (615 – 10 - 100 + 170 – 50 – 95) 530 2 940
(b) Share premium capital reserve

Revaluation reserve capital reserve
CRR capital reserve
General reserve revenue reserve
Retained earnings revenue reserve
(c) When the market value of the share is higher than the price given in their option to convert
In this case when market value is higher than $3 a share
Question 13 Hamilton Ltd

a) Dr Premises $290 000, Cr Revaluation reserve $290 000
Dr P.Share $100 000, Dr Retained profit $10 000, Cr Bank $110 000
Dr Retained Profit $100 000, Cr CRR $100 000
Dr CRR $100 000, Dr Revaluation reserve $50 000, Cr Ordinary share $150 000
b) Non-current assets $950 000 (750 + 200); Current Assets $200 000; Current liabilities $105 000 (58 + 28 + 19)
Ordinary share $450 000 (300 + 150); Revaluation reserve $240 000 (290 – 50);
Retained profit $70 000 (180 – 10 – 100)
Question 14 Beldoy
Total NBV of NCA $2 010 000; Total CA $2 391 000; Total CL $245 000; Total NCL $300 000; Ordinary shares $2 000
000; Share premium $930 000; R.Profit $926 000.
Chapter 20: Capital reduction

Question 1 Failure Ltd
a) Dr P.S capital $37500, Cr Cap Reduction $37500
Dr O.S capital $175000, Cr Cap reduction $175000
Dr Cap Reduction $3375, Cr O.S capital $3375
Dr S.Premium $40000, Cr Cap reduction $40000
Dr Prov For dep $62500, Cr Plant and machinery $62500
Dr Cap Reduction $72500, Cr Plant and Machinery $72500
Dr Cap Reduction $7250, Cr Preliminary exp $7250
Dr Cap reduction $55000, Cr Goodwill $55000
Dr Cap reduction $114375, Cr Retained losses $114375
d) Total NBV of NCA $125000; Total C.A $121875; Total C.L $43500; O.s Capital $90875; P.shares cap $112500
Question 2 Downfall Ltd

Eratum replace net Assets by Total Assets less current liabilities
Total Assets minus current liabilities $2 000 000; NCL $800 000; O.Share capital $700 000; P.Share capital $500 000
Question 3 Kalamitty Ltd

b) Tangible non-current assets $1075000; Net current assets $675000; O.S capital $1750000.
Question 4 Joloss
Tangible non-current assets $500000; Inventory $22000; Trade receivables $64000; Bank $6000; Current liabilities
$42000; O.S capital $550000.
Question 5 Decline Ltd

NBV of property $100 000; NBV of Plant and Machinery $41 000; Inventory $10 000; Cash and cash equivalent $22
000; Total CA $83 000; Total CL $24 000; O.share capital $150 000; P.Share capital $40 000; S.Premium $10 000.
Question 6 Knotsogood
a) Capital reconstruction account - Dr Side: Goodwill $110000, Inventory $4000, T.receivables $21000, Retain
losses $410000
Capital reconstruction account - Cr Side: P.S capital $100000, O.S capital $375000, Profit on disposal of land
$45000, Profit on sale of investment $25000
b) Total NBV of NCA $320000; Inventory $36000; T.Receivables $35000; Cash and cash equivalents $164000;
Trade payables $80000; O.S capital $149000; P.S capital $100000; S.premium $226000.
C(i) $0.68
C(ii) $0.63
Question 7 A.Banana
Journal Dr Cr
P.Share capital 500 000
Capital reduction 500 000
O.Share capital 6 000 000
Capital reduction 6 000 000
Capital Reduction 120 000
O.Share capital 120 000
10 % Debentures 1 000 000
Capital Reduction 1 000 000
8 % Debenture 800 000
Capital reduction 2 200 000
Goodwill 1 500 000
Patent 700 000
Capital Reduction 150 000
Inventory 50 000
T.Receivables 100 000
Bank 150 000
Director’s loan 100 000
Bank 25 000
Retained earnings 1 200 000
b) NCA $6 500 000 (3 600 000 + 2 900 000); CA $2 650 000 (1 050 000 + 1 600 000);
CL $1 475 000 (1 100 000 + 375 000); NCL $800 000; O Share cap $2 570 000; P.Share cap $1 500 000
Capital reserve $2 805 000
Question 8 Rising Tide

a) Capital Reduction A\c
O.share capital 5 000 O.Share capital 80 000
O.Share capital 2 000 8 % P.S capital 20 000
Goodwill 46 000 Property 10 000
P& Machinery 20 000
M.Vehicle 5 000
Inventory 7 000
Retained earnings 15 000
Bal c\d (capital reserve) 10 000
110 000 110 000
b) NCA $109 000 (39 000 + 40 000 + 30 000); CA $90 000 (31 000 + 12 000 + 47 000); CL $8 000; NCL $20 000
O.Share capital $127 000 (160 000 – 80 000 + 40 000 + 5000 + 2000); S.Premium $4 000;
P.share capital $30 000; Capital reserve $10 000
c) Statement showing anticipated annual return

Existing Existing Existing
O.Shareholders P.Shareholders Loan stock holders
Interest on loan stock 0.07 x 20 000 1400
Preference dividend 0.1 x 30 000 3000
Ordinary dividend payable to:
Loan holders 4 000 x $0.15 600
P.Shareholders 10 000 x $0.15 1500
O. Shareholders 240 000 x $.015 36 000
Total return 36 000 4500 2000
Profits remaining after interest and P.dividend = 42 500 – 1400 – 3000 = 38 100
Number of ordinary shares at end = $127 000 ÷ .05 = 254 000
DPS = 38 100 ÷ 254 000 = $0.15
Question 9 Milwall
Eratum the figure for retained profit should be in the Dr column
Journal Dr Cr
O.Share s 90 000
O.Shares of $0.5 each 7 500
P.Share 150 000
O.Shares (50 000 x $0.5) 25 000
8 % Debentures 50 000
11 % Debentures 100 000
8 % debentures 100 000
O.share (25 000 x $0.5) 12 500
Retained earnings 38 850
S.Premium 25 000
Goodwill 50 000
Plant and machinery (balancing figure) 81 150
Bank 30 000
O.share 30 000
Total NCA $199 350 (95 000 + 104 350); CA $89 150 (25 000 + 50 000 + 14150 ); CL $63 500; NCL $150 000 (100 000 +
50 000); O.Shares $75 000 (7500 + 25 000 + 12 500 + 30 000)
Chapter 21: Business purchase

Question 1 Argy and Bargy
a) Profit on realisation Argy $10000; Bargy $5000
Capital account – Business to pay Argy $11000 (loan transferred to capital a\c) and Bargy $3000
b) Total NBV of NCA $63000; Total CA $58000; Total CL $17000; Total NCL $5000; O.S capital $80000; S.Premium
$15000 Retained profit $4000.
Question 2 Drakar Ltd

a) Profit on realisation Aamer $22800, Bjorn $15200
Capital account – Business to pay Aamer $10800 and Bjorn $7200
b) Total NBV of NCA $917000; Total CA $330000; Total CL $43000; Total NCL $140000; O.S capital $650000;
S.Premium $190000 Retained profit $224000.
Question 3 Suck and Blow

a) Profit on Realisation Suck $85 800; Blow $57 200
Capital account – Business to pay Suck $36 800 and Blow $51200
b) Total NBV of NCA $1483000; Total CA $318000; Total CL $185000; Total NCL $75000; O.S capital $1200000;
S.Premium $65000; General reserve $200000; Retained profit $76000.
Question 4 Wong, Gruber and Gupta

a) Profit on realisation $32500, capital account – business to pay Wong $17500
b) Profit on Realisation Gruber $7 950; Gupta $7 950 ; Capital account – Business to pay Gupta $9 450 and Gruber to
pay business $8 550.
c) Total NBV of NCA $152 000 (including positive goodwill of $2000 on acquisition of Wong’s business); Total CA
$19 500; Total NCL $75000; O.S capital $72 000; S.Premium $24 000; Retained profit $500 (resulting from negative
goodwill on acquisition of partnership).
Question 5 Kasio Ltd

a) Purchase price $570 000; Negative goodwill $10 000; Total NBV of NCA $2 785 000; Total CA $1 167 500; Total CL
$545 000; O.S capital $1950 000; S.Premium $97 500; DRR $ 450 000; Retained profit $760 000.
c) NPBI $142 500; Profit $127 500
Question 6 Shawn and Phillips

a) Share of Profit on realisation Shawn $16 800; Phillips $11 200
b) To close capital a\c Business has to pay Shawn $23 800 and Phillip $11 200
c) NCA $295 000 (168 +66 +8 +25 +28); CA $70 000 (24 500 + 12 500 + 33000); CL $28 000; O.Share $250 000;
S.Premium $25 000; Retained profit $47 000
Question 7 Gate, Fence and Way
a) Share of residual profit Gate $17 390; Fence $10 434; Way $6956
Balance on current account at 30 April 2004 : Gate $11 740 Cr; Fence $511 Dr; Way $4929 Dr
b) Share of Profit on realisation Gate $5 000; Fence $3 000; Way $2 000.
To close capital account business has to pay Gate $15 490; Fence has to pay business $5 761; Way has to pay
business $8 429
c) Goodwill $10 600 positive
NCA $55 600 (30 000 + 10 000 + 5 000 + 10 600); CA $41 500 (32 000 +9 500); CL $7 100; O.Share $20 000;
P.share $37 500; S.Premium $32 500
Question 8 Paul and Vicky (Eratum – agreed value of computer should be $12 000 instead of $2 000)
a) Purchases price $170 000 (fair value of net assets + goodwill)
b) Share of profit on realisation Paul $4050; Vicky $2700
To close capital account Paul has to pay Vicky $3400
c) Total NCA $155 000 (70 + 40 + 6 + 7 + 12 + 20); Total CA $22 000 (9 + 10 + 3); Total CL $7 000; Ordinary share
$100 000; Share Premium $70 000
Question 9 Prescott, Rohini and Singh

a) Goodwill $26 950; Total NCA $406 675; Total CA $73 700; Total CL $24 080; Total NCL (debentures) $37 500;
O.Share $300 000; S.Premium $70 000; Retained profit $48 795.
b) $
Turnover 617 194
Expenses 137 599
Operating profit 134 736
Interest payable 3 000
Profit before taxation 131 736
Taxation 33 500
Profit after taxation 98 236
Dividend paid 15 000 (10 000 ÷ 200 000 x 300 000)
Retained profit for yr. 83 236
(c) E.p.s. 2011 = 28 217 / 200 000 = $0.141

E.p.s. 2012 = 98 236 / 300 000 = $0.327
Question 10 Brian Mills and Beryl Smart
a) Goodwill $4200; Total NCA $357 700; Total CA $104 255; Total CL $32 625; Total NCL(Debentures) $18 000;
O.Share $210 000; Non Redeemable P.S $15 000; S.Premium $87 000; R.Profit $99 330
b) ROCE 2012 =324 330 ÷ ÷82 350 × 100% = 25.39%

ROCE 2013 = 429 330 116 000 × 100% = 27.02%
Chapter 22: Merger

Question 1 Jack and Kevin
ai) Capital balance Jack $48 000; Kevin $60 000
aii) Capital balance Jack $39 900; Kevin $51 900
bi) Total NBV of NCA $73 200; Total CA $46 200; Total CL $11 400
bii) Total NBV of NCA $57 000; Total CA $46 200; Total CL $11 400
Question 2 Chan and David

c) Capital balance Chan$30 000; David $5 000
d) Total Non-current assets $33 000; Total CA $21 000; Total CL $19 000
e) Share of losses: Chan $2 000; David $1 000
Question 3 Aneeqa and Emilita
a) Total NBV of NCA $177 400; Total CA $53 150; Total CL $24 800; Capital Aneeqa $67 000; Emilita $138 750
b) Aneeqa gained $6470; Emilita lost $1470
c) Current ratio Aneeqa 3.73:1 ; Emilita 1.04:1 ; Partnership 2.14:1
Quick ratio Aneeqa 2.37:1 ; Emilita 0.79:1 ; Partnership 1.34:1
Emilita has benefitted in terms of job security
d) For her income to remain unchanged Emilita should received $1470 additional as share of profit, partnership
profit for the year should therefore increase by $2450 to arrive at $ 57 450. Hence % change is 14.9 %
Question 4 Hugh Bean and David Keen

a) Profit for the year $28 600 (42 000 + 800 – 2000 – 12 000 -200); Interest on drawing Hugh $1275 and David $1800
; Interest on capital Hugh $2960 and David $240; Salary Hugh $8 000 and David $14 000; Share of profits Hugh $2590
and David $3885
b) Capital balance Hugh $29 600 and David $4400; Current account balance Hugh $2975 and David $4525
Question 5 Pandit and Rowe

a) Balance capital account Pandit $29 700 and Rowe $29 900
b) Share of Profit Pandit $20 535 and Rowe $6845
c) Balance current account Pandit $4420 and Rowe $7880
Chapter 23: Statement of Cash Flows

Question 1 Sabrina Plc
$000
Operating Profit 686
Depreciation 786
Profit on Disposal of non-current assets (15)
Increase in inventories (214)
Increase in trade receivables (278)
Increase in trade payables 60
Cash from operations 1 025
Interest paid (225)
Tax paid (94)
Cash flow from Operating activities 706
$000
Net cash from operating activities 706
Cash flows from investing activities (3409)
Cash flows from financing activities 2 390
Net Decrease in cash and cash equivalents (313)
Question :2 Mittal Ltd
Depreciation 36 998
Revaluation gain 25 000
Bonus issue 17 000
Profit on disposal 1 883
Profit from Operations 32 000
Interest paid 2 450
Income taxes paid 4 750
Net cash flow from operating activities 61 649
Net cash flow from investing activities (99 949) [39 542 – 139 491]
Net cash flow from financing activities 27 025 [23 400 + 60 000 – 50 000 – 6 375]
Decrease in Cash and cash equivalent 11 455
Question 3 Powerpoint Ltd

Operating Profit 1 046 000
Profit on Sales Property 50 000
Impairment 24 000
Depreciation: property 12 000
Machinery 99 000
Interest Paid 30 000
Tax paid 363 000
Net cash flow from Operating Activities 520 000
Cash flow from Investing Activities 48 000
Cash flow from Financing Activities (183 000)
Net Increase in cash and cash Equivalent 385 000
Cash Margin =20.8%

Cash liquidity ratio =41.04%
Cash Interest cover =1 733.33%
Cash dividend cover =162.75%
Gearing ratio =27.5%
Earnings per share =$0.79 per share
Question 4 Popper’s Plc

Operating Profit 5 349 000
Depreciation 1 400 000
Loss on Disposal 5 000
Tax Paid 2 248 000
Net cash flow from operating activities 4 577 000
Cash flow from Investing activities (2 905 000)
Cash flow from Financing activities (1 034 000)
Net Increase in cash and cash equivalent 638 000
Question 5: Superprofit Ltd

a) Cost of sales 427 500
Operating profit 215 500
b) Net Cash Flow from operation 101 000

Net Cash Flow from investing (230 000)
Net Cash Flow from Financing 85 000
Decrease in cash and cash equivalent 44 000
c) Balance at end – Ordinary Share 280 000

- Preference Share 100 000
- Retained Profit 283 000
Question 6 Boger Plc

Depreciation: Plant and Machinery 135 000
M.Vehicles 85 000
Equipment 7 000
Loss on disposal: P.& Machinery 3 000
Equipment 2 000
Profit on disposal M.Vehicle 13 000
Tax Paid 78 000
Net Cash flow from Operating activities 589 000
Cash flow from Investing activities (620 000)
Cash flow from Financing activities (10 000)
Decrease in cash and cash Equivalent (21 000)
Question 7 Prophile Plc

Non-Current Assets Cost Acc. Depn NBV
Premises 1 000 000 _ 1 000 000
Plant and Machinery 1 380 000 (580 000) 800 000

Debentures 200 000
Nets Assets 1 838 000
Equity
Ordinary Share at $1 (850+150) 1 000 000
Share premium 200 000
Revaluation Reserve 240 000
Retained Profit 238 000
Question 8 Candy ltd

Non-current assets $72 000; Inventory $82 000; Trade receivables $147 000; Cash and cash equivalent $191 000;
Trade payables $105 000; Other payables (tax) $10 000; Debentures $25 000; O.Share capital $140 000; P. Share
capital $100 000; S.Premium $36 000; General reserve $65 000; Retained profit $11 000
Question 9 Squid Ltd

Property (NBV) 450 000
Plant and Equipment (NBV) 295 000
Current assets
Inventory 85 000
Trade receivables 80 000
Other receivables 34 000
Cash and cash equivalent 192 000
Current liabilities
Trade payables 96 000
Redeemable P.Share 300 000
Interest owing 10 000
Tax owing 25 000
Debentures 100 000
Net Assets 605 000
Equity
Ordinary Share 300 000
Retained Profit 175 000
Question 10 Pie Ltd

Cost Acc. Depn NBV
Property 400 000 (160 000) 240 000
Plant and Machinery 360 000 (200 000) 160 000
Motor Van 108 000 (60 000) 48 000
Goodwill 30 000 - 30 000

Debentures 120 000
Net Assets 575 000
Equity
Ordinary Share 250 000
Preference Share 100 000
Retained profit 75 000
Question 11 Hillman Worraker
Depreciation: Plant and Machinery 110 000

M.Vehicles 208 000
Building 23 000
Loss on disposal of vehicles 5 000
Profit on disposal building 101 000
Tax Paid 50 000
Net Cash flow from Operating activities 178 000
Cash flow from Investing activities (468 000)
Cash flow from Financing activities 528 000 (-100 000 +660 000 – 32 000)
Increase in cash and cash Equivalent (238 000)
Question 12 Costello Plc

Depreciation: Buildings 470 000
Plant and Machinery 50 000
Vehicle 400 000
Profit on Disposal(Vehicle) 7 000
Loss on disposal(Plant and Machinery) 26 000
Interest paid 30 000
Tax paid 306 000
Cash flow from Operating activities 1 625
Net cash flow from Investing activities (3 647 000)
Net cash flow from Financing Activities 135 500
Net decrease in cash and cash equivalent 667 000
Question 13 Konair Plc

Depreciation: Freehold Property 25 000
Vehicles 230 000
Plant and Machinery 50 000
Profit on Disposal 4 000
Tax Paid 220 000
Net cash flow from Operating Activities 230 000
Cash flow from Investing Activities (442 000)
Cash flow from financing activities 127 000
Net decrease in cash and cash equivalent (85 000)
Chapter 24: Overhead Costing

Question 1 Ken Ltd
a) OAR 40 % of direct labour costs; Total cost $17 160; Selling price $21 450
b) OAR: Assembly $1.2 per direct labour hour, Painting 45 % of direct labour cost; Packing $9.375 per machine hour.
c) $20 160
Question 2 Beldoy Ltd

a) Total budgeted overheads: Moulding $69 197; Assembly $78 983; Paintshop $45 820
b) Budgeted labour hours: Moulding 25 200; Assembly 33 600; Paintshop 16 800
OAR: Moulding $2.75 per labour hour; Assembly $2.35 per labour hour; Paintshop $2.73 per labour hour
c) $14.395 (6.1875+4.1125+4.095)
Question 3 Darnick Holdalls Ltd

a) Total budgeted overheads: Cutting $186 200; Stitching $228 600
Total direct wages for Cutting $420 000; Total machine hours for Stitching 88 000
OAR: Cutting 44.33% of direct wages; Stitching $2.598 per machine hour
b) $77.38
Question 4 Poisson Ltd

ai) $0.1576 per machine hour
aii) 132.2 % of direct labour cost
aiii) $0.1329 per direct labour hour
Question 5 Mandar Ltd

ai) Labour rate: Cutting $6.6; Pressing $6.25; Production $6.75; Assembly $6
aii) OAR: Cutting $4.8; Pressing $6.1; Production $4.9; Assembly $5.3
b) $264 000
c) $330 000
Question 6 Tepco
a) X 8000 units; Y 19 000 units
b) Dept A $104 000 (28000+ 76000); Dept B $146 000 (32000+114000); Dept C $81 000 (24000+57000)
c) Ding $84 000 (28000+32000+24000); Dong $247 000 (76000+114000+57000)
d) Contribution Ding $104 000; Dong $437 000
Profit Ding $20 000; Dong $190 000
e) BEP Ding $6461.54; Dong $10739.13
f) 52 000 hours (Ding 14 000 hrs + Dong 38 000 hrs)
Question 7 Debbie , Harry and Co

b i) 66.335 % of direct materials
bii)119.717% of direct wages
biii) $6.147 per machine hour
ci) Factory wide OAR $5.338 per labour hour; Overheads charged to the job $69.394
cii) $64.09 (21.227 + 24.422 + 18.441)
Question 8 Weighton
ai) $5 per machine hour
aii) 35 % of direct wages
b) $117
Question 9 Horden Products Ltd

a) OAR - Dept A 150 % of direct wages; Dept B 87.5 % of direct wages; Dept C 120 % of direct wages
b) $1430
ci) OAR - Dept A $8.4 per labour hour; Dept B $3.5 per labour hour; Dept C $2.5 per labour hour
cii) OAR - Dept A $2.21 per machine hour; Dept B $4.375 per machine hour; Dept C $15 per machine hour
Question 10 Armstead
a) 150 % of direct wages
b) Production overhead $2175 (150 % x 1450); total production cost $5550; Selling price $7770
c) Cost centre A $12.5 per machine hour
Cost centre B $12 per labour hour
Cost centre C $10.5 per labour hour
Cost centre D $94.1 % of direct wages
d) Production overhead $3110.84 (12.5 x 100 + 12 x 110 +10.5 x 30 + 94.1 % x 240); total production cost $6485.84;
Selling price $9080.18
Chapter 25 Marginal and Absorption costing
Question 1 Korsair Ltd

2008 2009
a) Units sold 8150 6700
Revenue $603 100 $495 800
b) Total variable cost $320 000 $280 000

c) OAR $12 per unit
d) Overhead absorbed $96 000 $84 000
e) Overabsorption\underabsorption $6000 over $6000 under
fi) Value of inventory MC basis: Opening $18 000 $12 000
Closing $12 000 $24 000
fi) Value of inventory AC basis: Opening $23 400 $15 600
Closing $15 600 $31 200
gi) MC basis: Contribution $260 800 $214 400
Profit $165 800 $119 400
gi) AC basis: Cost of sales $423 800 $348 400
Profit $164 000 $123 000
Question 2 CBA Ltd

a) 1600 units
b) Total variable costs $195 500; Contribution $102 000; Profit $67 000
c) Cost of sales $204 000; Gross profit $93 500; Overabsorption $1500; profit $70 000
Question 3 Niltox
a) 8900 units
c) Cost of sales $56 070; Gross profit $77 430; Underabsorption $2250; profit $40480
Question 4 Central Ltd

a) OAR $0.3 per unit; Overabsorption $9000
c) Cost of sales $377 000; Gross profit $273 000; profit $206 000
Question 5 Vishy
a) Total variable cost $12 090; Contribution $5850; Profit $3150
b) Cost of sales $12382; Gross profit $5558; Profit $3263
Question 6 Rander Ltd

a)
Period 1 Period 2
Revenue 147 000 246 750
Opening inventory - 103 800
DM 58 500 43 500
DL 66 000 49 200
VO 44 000 32 800
Closing inventory 103 800 112 800
Contribution 82 300 130 250
Profit or loss 27 700 loss 48 250 profit
Units of closing inventory Period 1: Pooh = 2500 – 300 = 2200

Barbie = 1750 – 1600 = 150
Units of closing inventory Period 2: Pooh = 2200 + 1900 – 1700 = 2400
Barbie = 150 + 1250 – 1250 = 150
b)
Period 1 Period 2
Revenue 147 000 246 750
Opening inventory - 172800
DM 58 500 43 500
DL 66 000 49 200
VO 44 000 32 800
F.Overhead absorbed 110 000 82 000
Closing inventory 172 800 187 800
Profit 41 300 54 250
DL hours per unit Pooh = $18 ÷ $6 = 3 hrs

Barbie = $12 ÷ $6 = 2 hrs
Budgeted hours = 2400 x 3 hrs + 1400 x 2 hrs = 10 000 hrs
OAR = $100 000 ÷ 10 000 hrs = $10 per hour
OAR per unit Pooh = $10 x 3 hrs = $30
Barbie = $10 x 2 hrs = $20
Overhead absorbed P1= 2500 x $30 + 1750 x $20 = $110 000

P2 = 1900 x $30 + 1250 x $20 = $82 000
Since overhead absorbed is equal to actual overheads in both periods there is neither over nor under absorption
Closing inventory P1 = 2200 x (45 + 30) + 150 x (32 + 20) = 172 800
P2 = 2400 x (45 + 30) + 150 x (32 + 20) = 187 800
Question 7 Nafferton Ltd

a) Marginal costing :Total variable cost for 2002 $3 150 000 and 2003 $2 250 000; Contribution for 2002 $1 050 000
and 2003 $750 000; Profit for the year for 2002 $867 000 and 2003 $ 567 000
Absorption costing: Cost of sales for 2002 $3 066 000 and 2003 $2 190 000; Fixed production overhead absorbed for
2002 $ $114 000 and 2003 $96 000; Over-absorption of $6 000 for 2002 and under-absorption of $12 000 for 2003;
Profit for the year 2002 $855 000 and 2003 $573 000
Question 8 Titanic Ltd

Gross Profit Under AC 2011 $180 000; 2012 $183 800
Gross Profit Under MC 2011 $173 000; 2012 $175 600
Question 9 Goodwryte
a) Total profit $47 700

c) Closing inventory: N $35 720; K $9 405; E $7 062; P $14 100
Contribution: N $71 720; K $167 405; E $60 762; P $34 100
Profit $129 987
d) Profit $140 907
Question 10 Redwood
ai) 2008 2009 2010
Revenue 480 000 572 000 736 000
Less V.Cost
Opening inventory - 81 000 60 000
Variable production cost 405 000 360 000 512 000
Less closing inventory (81 000) (60 000) (64 000)
Total variable cost 324 000 381 000 508 000
Contribution 156 000 191 000 228 000
Less fixed cost (60 000) (66 000) (70 000)
Gross Profit 96 000 125 000 158 000
Calculation of inventory in units 2008 2009 2010

Opening inventory in units - 3000 2000
Add units produced 15000 12000 16000
Less units sold 12000 13000 16000
Closing inventory in units 3000 2000 2000
Variable production cost per unit 2008 = 15 + 8 + 4 = 27
2009 = 15 + 9 +6 = 30
2010 = 16 + 9 + 7 = 32
Closing Inventory under marginal costing 2008 = 3000 x 27 = 81 000
2009 = 2000 x 30 = 60 000
2010 = 2000 x 32 = 64000
aii) 2008 2009 2010

Revenue 480 000 572 000 736 000
Less V.Cost
Opening inventory - 93 000 71 000
Variable production cost 405 000 360 000 512 000
Fixed production costs 60 000 66 000 70 000
Less closing inventory (93 000) (71 000) (72 250)
Cost of sales 372 000 448 000 580 250
Gross Profit 108 000 124 000 155 750
Fixed cost per unit 2008 = $60 000 ÷ 15 000 = $4

2009 = $66 000 ÷ 12 000 = $5.5
2010 = $70 000 ÷ 16 000 = $4.375
Closing Inventory under Absorption costing 2008 = 3000 x (27 + 4) = 93 000

2009 = 2000 x (30 + 5.5) = 71 000
2010 = 2000 x (32 + 4.375) = 72 750
Reconciliation of profit
2008 2009 2010
Profit as per AC 108 000 124 000 155 750
Add difference in opening inventory - 12 000 11 000
Less difference in closing inventory (12 000) (11 000) (8750)
Profit as per MC 96 000 125 000 158 000
Question 11 Hilton
ai) Total Variable costs; Sept $21 600; Oct $41 400 Contribution; Sept $38 400; Oct $73 600 Profit Sept $24 000;
Oct $59 200
aii) Fixed overhead absorbed Sept $12 000; Oct $16 000; Cost of sales Sept $28 800; Oct $55 200;
Profit Sept $26 400; Oct $56 800
Chapter 26 Cost Volume profit analysis

Question 1 Katerina
b) 35 %
c) BEP in value $257142.86
d) $542 857.14
e) Profit $41 250
f) $538 333 – 538 485 acceptable range
Question 2 Hoi Poloi

b) Selling price four drawer $27; three drawer $21; two drawer $15
c) BEP in units four drawer 14 000; three drawer 18 000; two drawer 27 000
BEP in dollars four drawer $378 000; three drawer $168 000; two drawer $405 000
d) four drawer $7 000 profit; three drawer $12000 loss; two drawer $15 000 profit
e) four drawer $5 500 profit; three drawer $11 400 loss; two drawer $21 000 profit; Total profit $15 100
Question 3 Paul
3 (a) (i) (400 hours × 6) × 80% = 1,920 cars
(ii) $(1.00 + 0.50 + 0.05 + 1.25) = $2.80 × 1,920 cars = $5 376
(iii) (Variable costs 5376 + Fixed costs 3840) = $9 216
(iv) $9216 / 1920 cars = $4.80 per car
(v) Price per car = $(4.80 + 25%) $6.00
(vi) (6 × 1920) = 11 520 – 9216 $2 304
(b) (i) SP – VC = $(6.00 – 2.80) = $3.20 per car wash

(ii) BEP = $3840 / $3.20 = 1200 cars
(iii) In dollars = (1920 – 1200) = 720 cars × $6 = $4320
(iv) In cars = 1440 cars less 1200 cars = 240 × $6 = $1440
(v) $(3.20 / 6.00) × 100 = 53.33%
(c) (i) BEP = FC/c = $3240 / 2.40 = 1350 cars

BEP in dollars = 1350 cars × $6 = $8100
(ii) $792
Question 4
a) $5
b) $2; 40 %
c) 60 %
d) $10 000
e) 3333.3 units; $16 666.67
f) $83 333.3 ; 16 666.67 units
g) 24 000 units; $120 000
Question 5
a) 1/3
b) 2/3
c) $25 000
d) $75 000/ 9375 units
e) $270 000
Question 6 Varihary
a) Sintax 9000 units ;Gremmer 2000 units
b) SIntax 40 %; Gremmer 20 %
c)C\s ratio Company 35 %
d) BEP in value $28571.43; Profit $32 000; Loss $3000
e) Sintax 9600 units ;Gremmer 2400 units
f) C\s ratio Company 34. 5%
Question 7 Hiper ltd

a) A – Break-even point; B – Total revenue line; C – Total cost line; D – Fixed cost line
b) 333.33 units; $2500
c) 266.67 units; $2000
d) $1200
Question 8 Larry
a) 1 – Profit range; 2 – Loss range; 3 – Sales revenue; 4 – BEP in dollars
b) BEP in units 95.24; BEP in value $2857
c) 204.76 units; $6142.8
d) $6100
Question 9 Beplay
ai) BEP 1500 units ; $240 000

aii) Margin of safety 6500 units; $1 040 000
aii) Profit $494 000
b) Profit from option 1 $494 400; option 2 $539 600; option 3 $518 000
c) Sales in units under option 1 to maintain profit at draft forecast: 8475 units
(80x – 114 000 – 70 000 = 494 000)
X = 8475
Local employer may face redundancies; multiplier impact on other employers in the community.
Industrial relations; switching to an overseas supplier may lead to local unrest and protests, leading to adverse
publicity.
Reliability of new supplier, will deliveries be on time? How will urgent requirements be dealt with? Transport
and communication issues.
Price stability; has the overseas supplier offered a lower price to get the business? How long will this price be
fixed?
Quality issues, difficulties and time in resolving problems compared to ability to quickly visit local supplier.
Question 10 Caspian
ai) BEP 18 000 units and $720 000
aii) profit $51 750
aiii) Margin of safety 4 500 units ; 20 %
aiv) 20 000 units
Question 11 BLT
a)
DM per unit = 21 000 ÷ 6000 = $3.5
DL per unit = 3 x $12 = $36
V.P expense per unit = 21 000 ÷ 6000 $3.5
TVC per unit = 43
Unit contribution = 87 – 43 = 44
BEP = 108 000 ÷ 44 = 2455
Margin of safety in value = (6000 – 2455) x $87 = 308 415
Profit for the year = (6000 x 44) – 108 000 = 156 000
b) 100 % capacity = 6000 ÷75 % = 8000 units
Revised DM per unit = 0.9 x 3.5 = 3.15
Decrease in DM per unit = 0.35
Decrease in S.Price = 87 - 80 = 7
Revised unit contribution = 44 +0.35 – 7 = 37.35
New BEP = 108 000 ÷37.35 = 2892
Margin of safety = (8000 – 2892) x 80 = $408 640
Profit = (8000 x 37.35) – 108 000 = 190 800
c) Revenue (6000 x 87 + 4000 x 72) 810 000

Less V.C
DM (10 000 x 3.5) x 85 % 29750
DL (8000 x 36) + (2000 x 3 x 18) 396 000
V.P.expenses (10 000 x 3.5) 35 000 460 750
Contribution 349 250
Less F.cost (108 000 + 20 000 ) 128 000
Profit 221 250
Question 12 Debussy
ai) 120 000 units; $720 000
aii) $80 000
aiii) 80 000 units; 40 %
c)
D946 D947 D948 Total
Selling Price per unit 6 9 13
Less Variable Costs per unit 5 10.50 10
Equals Contribution per unit 1 (1.5) 3
× Number of Units 200 000 50 000 30 000
Equals Total Contribution 200 000 (75 000) 90 000 215 000
Less Fixed Costs 240 000
Equals Profit / Loss (25 000)
d) All three products should not be produced. D947 should be eliminated as it has a negative contribution .
Question 13 Ozwide
a)
Factory BEP in units BEP in units
Brisban 2750 110 000
Melbourne 3643 145 720
Perth 2333 93320
Sydney 3000 120 000
b) Units to be produced in each factory = 3600 (14 400 ÷ 4)
B M P S
Unit contribution $8 $7 $9 $10
Sales in units 3600 3600 3600 3600
Total contribution 28800 25200 32400 36000
Less fixed costs 22000 25500 21000 30000
Profit \(loss) 6800 (300) 11400 6000
Company profit = 6 800 – 300 + 11400 + 6000 = 23 900
c)
B P S
Unit contribution $8 $9 $10
Sales in units 4800 4800 4800
Total contribution 38400 43200 48000
Company profit = 38400 + 43 200 +48 000 – 22 000 – 5 000 – 21 000 – 30 000 = 51 600
d)
Contribution from: B = 39 200 (4000 x 8 + 800 x 9)
P = 44 000 (4000 x 9 + 800 x 11)
S = 48 800 (4000 x 10 + 800 x 11)
Company profit = 39 200 + 44 000 + 48 800 – 22 000 – 5 000 – 21 000 – 30 000 = 54 000
Question 14 Mary Smith

ai) $15
aii) 12 000 units
aiii) 13 000 units; 52 %
(b) Depreciation, Admin costs, Rent, Insurance, Advertising/marketing, Rates, Indirect wages,Loan interest
(c) Stepped costs occur when a business increases capacity. As a result of expansion overheads such as insurance,
rent and rates and bank interest payments are likely to increase. On a break even chart these increases would result
in a horizontal fixed cost line moving to a higher level beyond the output at which increased capacity occurs.
(e) If budgeted data is reasonably accurate and the budgeted level of activity could be maintained in future years
then the business would generate more profits ($225 000 v $195 000) by increasing capacity.
The margin of safety will also be higher in unit terms (15 000 v 13 000) but lower in percentage terms (37.5% v 52%).
The business will make no profit following expansion if sales return to the previous level as the new break-even is
the same as the previous sales / output.
The capital cost of $3 000 000 is likely to result in interest payments which would have to be met irrespective of
profit performance.
Question 15 Letters
Eratum Adj 3 iv) sales and administrative fixed overhead
Question 16 Alberta
ai) BEP in units 120 000; BEP in value $1 440 000
aii) $60 000
aiii) 280 000 units ; 70 %
b) $980 000
Question 17 Global Airlines
ai) Contribution per flight = 18 000 – 4 100 – 6 800 – 700 – 1400 = 5 000
Profit for the year = (600 x 5 000) – 1 800 000 = 1 200 000
aii) BEP = $1 800 000 ÷ $5 000 =360 flight

aiii) Margin of safety = 600 – 360 = 240 flight
bi) Contribution per flight for Washinton = 15 500 – 4 700 – 6 900 – 900 – 1200 = 1800
Contribution per flight for Denver = 14 800 – 5 200 – 7 100 – 800 – 1800 = 100 negative
Contribution per flight for San Francisco = 14 000 – 5500 – 5700 -600 - 1400 = 800
To maximize profit, Global should extend its operation to Washinton and San Francisco only since Denver has a
negative contribution.
Contribution from: Texas 3 000 000 (600 x 5000)

Washinton 720 000 (400 x 1800)
S.Francisco 440 000 (550 x 800)
Less fixed costs 2 580 000 (1800 000 + 390 000 + 390 000)
Maximum profit 1 580 000
bii) Number of flights = 1550 (600 + 400 + 550)
Currently making a profit of $1,200,000. Expanding would increase profit by 31.7% to $1,580,000. New airports
would have higher costs and lower revenue at start up, but over time this may change.
Although Denver shows a negative contribution, it is fairly small and operating on a wider base might bring benefits
to the company. The company may consider running denver at an initial loss and developing over time.
All figures are estimates and may not materialise. Social factors such as global warming may decrease demand,
although demand may increase with increasing leisure time/development/reputation.
Question 18 Bahuja
a) Profit = 120 000 x (187 – 131)

b) Statement of profit assuming shift system runs
Revenue 31 440 000 (120 000 x 187 + 60 000 x 150)
Less V.Cost
D.Materials 12 117 600 (180 000 x 74.8) x 90 %
D.Labour 3 590 400 (120 000 x 18.7) + (60 000 x 18.7 x120 %)
V.Overheads 1 350 000 (180 000x 7.5)
TVC 17 058 000
Contribution 14 382 000
Fixed costs 6 100 000 (3600 000 + 2500 000)
Profit 8 282 000
Additional profit = 8 282 000 – 6 720 000 = 1 562 000
c) Unit contribution from night shift = 150 -74.8 – (1.2 x 18.7) – 7.5 = 45.26
Minimum increase in sales to justify night shift = 2 500 000 ÷ 45.26 = 55 236 units
Note that material cost has to be taken as 74.8 since discount will be received only if purchases increase by
50 %.
d) Would the firm be able to maintain selling price of the firsts 120 000 units at $187
Would it be more profitable to contract out the additional 60 000 units
Would extra day shift facilities be more profitable
Would it be more profitable to diversify into new products
Chapter 27: Decision making
Make or Buy
Question 1 Kam Ltd
ai) Profit when produce $75 000
aii) Profit when buy $55 000
c) $80 000
d) 12 500 units; 1-12499 profit higher under purchase; above 12 500 units profit higher under production
Question 2 Garth Vader
a i) 225 000 units

aii) 440 000 units
b) 720 000 units
Cabinet 1($) Cabinet 2($) Cabinet 3($)
c(i) 200 000 units 12 000 000 4 000 000 27 200 000 loss
(ii) 250 000 units 17 000 000 16 000 000 12 200 000 loss
(iii) 300 000 units 22 000 000 28 000 000 2 800 000
d) 257 143 units
Question 3 Aloysius Dixon

a) Total contribution = Profit + Fixed costs
1 656 000 + 640/2 + 480/2 = 2 216 000 divided by 8000 for unit contribution = 277
b)
Purchase Lease Extra shift
Sales 11 000 000 11 000 000 11 000 000
Direct materials 1 024 000 1 280 000 1 280 000
Direct labour 5 000 000 6 250 000 6 437 500
Variable production overhead 320 000 400 000 400 000
Variable sales overhead 300 000 300 000 300 000
Fixed production overhead 320 000 320 000 320 000
Fixed sales overhead 240 000 240 000 240 000
Buy in, Lease, Training 1 840 000 260 000 50 000
Total costs 9 044 000 9 050 000 9 027 500
Profit 1 956 000 1 950 000 1 972 500
Original profit 1 656 000 1 656 000 1 656 000
additional profit 300 000 294 000 316 500
Question 4 Tutti and Butti

ai) Fixed cost = 1.2 x 80 000 = 96 000
DM per unit: B = $20 ÷ 10 = 2
H = $15 ÷ 10 = 1.5
S = $10 ÷ 10 = 1
Total DM per knife = 2 + 1.5 + 1 = 4.5
DL per unit: B = 1.5 x $8 ÷ 10 = 1.2

H = 2 x $8 ÷ 10 = 1.6
S = 1 x $8 ÷ 10 = 0.8
A = 1 x $6 ÷10 = 0.6
Total DL per unit = 4.2
V.O per unit: B = 1.5 x $1 ÷ 10 = 0.15
H = 2 x $1 ÷ 10 = 0.2
S = 1 x $1 ÷ 10 = 0.1
A = 1 x $1 ÷10 = 0.1
Total VO per unit = 0.55
Unit contribution = 12 -4.5 – 4.2 – 0.55 = 2.75

Profit = (80 000 x 2.75) – 96 000 = 124 000
aii) Buy Blades

Hours freed if blades are purchased = 1.5 ÷ 10 x 80 000 = 12 000 hours
Hour required to produce 1 handle and 1 spring = (2 + 1) ÷ 10 = 0.3
Additional handles and spring that can be produced = 12 000 ÷ 0.3 = 40 000
Calculation of unit contribution

S.P 12
DM 2.5 (1.5 + 1)
DL 3 (1.6 +0.8 + 0.6)
VO 0.4 (0.2 + 0.1 + 0.1)
Purchase price of blade 3
Unit contribution 3.1
Profit = (120 000 x 3.1) - 96 000 = 276 000
aiii) Buy handles

Hours freed if handles are purchased = 2 ÷ 10 x 80 000 = 16 000 hours
Hour required to produce 1 blade and 1 spring = (1.5 + 1) ÷ 10 = 0.25
Additional handles and spring that can be produced = 16 000 ÷ 0.25 = 64 000
S.P 12
DM 3 (2 + 1)
DL 2.6 (1.2 +0.8 + 0.6)
VO 0.35 (0.15 + 0.1 + 0.1)
Purchase price of handle 4
Profit = (144 000 x 2.05) - 96 000 = 199 200
aiv) Buy Blades and handles

Hours freed if handles are purchased = 12 000 + 16 000 = 28 000
Additional spring that can be produced = 28 000 ÷ 0.1 = 280 000
S.P 12
DM 1
DL 1.4 (0.8 + 0.6)
VO 0.2 (0.1 + 0.1)
Purchase price of blade 3
Purchase price of handle 4
Profit = (360 000 x 2.4) - 96 000 = 768 000
Question 5 Compo
a) TVC per unit for purchases = 200
Tvc per unit for Alternative A = 120 (45 + 60 + 15)
TVC per unit for Alternative B = 85 (45 + 30 + 10)
Let units be Q
Cost equation for purchase = 200Q
Cost equation for Alternative A = 120Q + 18 000 000
Cost equation for Alternative B = 85Q + 34 500 000
200 Q = 120Q + 18 000 000

Q = 225 000 units
Hence 225 000 units should be produced under alternative A so that the total annual cost would be equal to the
outside purchase cost
200 Q = 85Q + 34 500 000

Q = 300 000 units
Hence 300 000 units should be produced under alternative B so that the total annual cost would be equal to the
outside purchase cost
Unit contribution for purchase = 50 (250 – 200)

Unit contribution for Alternative A = 120 (240 – 120)
Unit contribution for Alternative B = 175 (260- 85)
Profit equation for purchase = 50Q

Profit equation for Alternative A = 120Q - 18 000 000
Profit equation for Alternative B = 175Q - 34 500 000
bi) At 200 000 units profit for: Purchase = 50 x 200 000 = 10 000 000
Alternative A = 120 x 200 000 – 18 000 000 = 6 000 000
Alternative B = 175 x 200 000 – 34 500 000 = 500 000
At a level of 200 000 units purchase is most profitable
bii) At 250 000 units profit for: Purchase = 50 x 250 000 = 12 500 000
Alternative A = 120 x 250 000 – 18 000 000 = 12 000 000
Alternative B = 175 x 250 000 – 34 500 000 = 9 250 000
At a level of 200 000 units purchase is most profitable
biii) At 500 000 units profit for: Purchase = 50 x 500 000 = 25 000 000
Alternative A = 120 x 500 000 – 18 000 000 = 42 000 000
Alternative B = 175 x 500 000 – 34 500 000 = 53 000 000
At a level of 500 000 units produce using Alternative B is most profitable
c) Equate profit equation A with B
120Q – 18 000 000 = 175Q – 34 500 000
Q = 300 000
d) Equate profit equation purchase with that of Alternative A

50Q = 120Q – 18 000 000
Q = 257 143
At 257 144 it would be more profitable to produce using alternative A rather than purchase from outside
supplier
Equate profit equation purchase with that of Alternative B
50Q = 175Q – 34 500 000
Q = 276 000
At 276 001 it would be more profitable to produce using alternative B rather than purchase from outside
supplier
Note: the minimum production level at which it would pay the company to manufacture rather than
purchase is 257 144 using Alternative A. Alternative B would become more profitable than purchase after
276 000 units.
Question 6 Sord Ltd

a)
DM per tonne = $60
D.Labour rate per hour = $5
D.Labour rate per tonne = $250
VPO per tonne= $25
Fixed production overhead = 400 000
Variable admin & selling overhead = $10
Fixed Admin & selling overhead = $480 000
Unit contribution = $155 ( 500 – 60 – 250 – 25 – 10)
b)
Option 1
Revenue (20 000 x 500) 10 000 000
Less variable cost
Cost of purchase (4000 x 425) 1 700 000
DM 960 000
D.wages 4 000 000
VPO 400 000
Variable admin & selling (20 000 x 10) 200 000 7 260 000
Fixed production overheads 400 000
Fixed Admin & selling (480 000 + 90 000) 570 000
Profit 1 770 000
Option 2
Revenue (20 000 x 500) 10 000 000
Less variable cost
DM (20 000 x 60) 1 200 000
D.wages 4 000 000 + (220 000 x 6) 5 320 000
VPO (20 000 x 25) 500 000
Training 100 000
Profit 1 710 000
Option 3
Revenue (20 000 x 500) 10 000 000
Less variable cost
DM (20 000 x 60) 1 200 000
D.wages (20 000 x 250) 5 000 000
VPO (20 000 x 25) 500 000
Rent 300 000
Profit 1 830 000
Question 7 Bilaben
a) $235 500
b) Option 1
Sales 5000 x 250 1,250,000
Direct Materials 5000 x 35 175,000
Basic D Labour 4.5000 x 6 270,000
5000 extra hours 5000 x 9 45,000
Extra costs 5000 x 1.5 7,500
VO 60,000
V Admin 0verheads 70,000
Fixed costs 125,000
70,000
150,000 345,000 972,500
Net Profit 277,500
Option 2
Sales 1,250,000
DM 157,500
DL 270,000
VO 54,000
V Admin 0verheads 63,000
Fixed Costs 345,000
Lease 50,000 939,500
Net Profit 310,500
Option 3
Sales 1,250,000
DM 157,500
DL 270,000
VO 54,000
V Ad O 63,000
Fixed Costs 345,000
Cost of buying in 500 x 200 100,000 989,500
Net Profit 260,500
Option 1
Second most profitable option, but could lead to employees expecting overtime in future.
Option 2
Market research costs already spent, so no further outlay, and best net profit. But there may be possible re-
training problems.
Option 3
No additional capital outlay, but possible problems of quality control.
Dropping of product line
Question 8 Quid ltd

a) Contribution A $270 000; B $540 000; C $600 000; Profit $123 000
b) $253 000 profit ; BEP 23 400 units.
Question 9 Singh Ltd

a) Athol 5000 hours; Brose 3250 hours; Crowdie 5500 hours; Total hours 13 750.
b) Athol $2.4; Crowdie $5
c) Athol 8 units; Brose 4 units; Crowdie 4 units
e) Total variable costs Athol $162 750; Crowdie $88 800; Profit $34 450.
Question 10 Ventanna Ltd
(a) (i) P T O
$ $ $
Sales price 61 158 170
Variable costs 51 118 120
(ii) P T O
$ $ $
Fixed cost per unit 15 30 40
Number of units 2 000 1 600 1 000
30 000 48 000 40 000
Total fixed cost = $118 000 1
(iii) P T O
$ $ $
30 000/10 48 000/40 40 000/50
BEP (units) 3 000 1 200 800
Dollars 183 000 189 600 136 000
P T O
$ $ $
Total contribution 20 000 64 000 50 000
(based on unit contribution)
Less Fixed costs 30 000 48 000 40 000
P/(L) (10 000) 16 000 10 000
(c) TOTAL FIXED COSTS WERE $118000

T O TOTAL
$ $
Output 2 400 1 500
Contribution 40 50
TOTAL CONTRIBUTION 96 000 75 000 171 000
LESS Fixed costs 147 500 (118 000 + 0.25 x 118 000)
TOTAL PROFIT 23 500
Old profit 16 000
Increase in profit 7 500
Question 11 Bond Ltd
a)
A B C Total
Sales in units 20 000 30 000 50 000
$ $ $
Unit contribution 6 5 4
Total contribution 120 000 150 000 200 000 470 000
Less fixed cost
G.P overheads 15000 30000 75000 120000
Depreciation 38400 10800 10800 60000
Rent and rates 12000 9000 9000 30000
Admin overheads 11163 22326 46511 80000
Selling overheads 20000 30000 50000 100000
Profit 23437 47874 8689 80000
Labour cost A 20 000 x3 = 60 000

B 30 000 x 4 = 120 000
C 50 000 x 6 = 300 000
Total 480 000
Sales revenue A 20 000 x 15 =300 000

B 30 000 x 20 = 600 000
C 50 000 x 25 = 1 250 000
Total 2 150 000
c) Total contribution from A and B 270 000 (120 000 + 150 000)
Total fixed cost 390 000
Loss of the company 120 000
It is not viable to discontinue product C since profit of the company will decrease from $80 000 to a loss of $120 000.
This is because of the positive contribution of $200 000 from product which will not be earned.
Closure of deparment
Question 12 Central Ltd

a) Contribution Leeway $30000; Mayway $58 500; Noway $49 500; Profit $10 000
b) Loss $15 000
Question 13 Kiat Ltd

Eratum year ended 2012 should have been 2002
Dodo Lolo Momo Popo
Gross profit 36 750 60 750 34 625 19 500
Profit (loss) for the year 1750 10 750 5625 (500)
Company profit if all stores are operating = 17 625 (1750 + 10750 + 5625 – 500)
Company profit if Popo is closed
G.Profit 132 125 (36 750 + 60 750 + 34 625)
Salary 57 000 (19 000 + 25 000 + 13 000)
Store F.Overhead 32 000 (10 000 + 16 000 + 6 000)
Head office cost 24000 (6000 + 9000 + 10000 +3 000 – 4000)
Profit 19 125
Company profit if Dodo and Popo is closed

G.Profit 95 375 (60 750 + 34 625)
Salary 38 000 (25 000 + 13 000)
Store F.Overhead 22 000 (16 000 + 6 000)
Head office cost 19000 (6000 + 9000 + 10000 +3 000 – 9000)
Profit 16 375
Only Popo should be closed. Although it has a positive contribution, its closure would result in a decrease in head
office cost and this will increase profit from $17 625 to 19 125.
Note: the store fixed overheads will not be incurred if the department is closed
Acceptance of special order below normal selling price
Question 14 Florensuc
a) Contribution $54 000; Profit $30 000
b) Profit $36 000
c) Profit $27 000
Question 15 Chocopie
a) Unit contribution 6 (20 – 6 – 5 – 2 – 1)
sales in units 6 300
Total contribution 37 800
Less fixed cost 15 000
Profit 22 800
b)
Revenue (6300 x $20 + 1500 x $16) 150 000
Less V.Cost
DM (7800 x 6) 46800
DL (7800 x 5) 39000
VPO (7800 x 2) 15 600
V.Selling (6300 x 1) 6300 107700
Contribution 42 300
Profit 27 300
c) 90 % capacity = 6300
100 % = 7000
Accepting the special order would result in production to exceed capacity, hence increase in fixed cost
Contribution 42 300
Less fixed cost 21 300 (15 000 + 6000)
Question 16 Tiger Ltd

a)
80 % capacity = sales of $2 400 000
100 % = 3 000 000
50 % selling price remain constant = $1 500 000
50 % selling price decrease by 10 % = 1 500 000 x 90 % = 1 350 000
Revenue (1 500 000 + 1 350 000 ) 2 850 000

Less cost
DM (750 ÷ 80 %) 937 500
DL (300 ÷ 80 %) 375 000
VO (150 ÷ 80 %) 187 500
Fixed costs 800 000
Profit 550 000
Option 3
Revenue (2 400 000 + 1 350 000 ) 3 750 000
Less cost
DM (750 ÷ 80 x 130) 1 218 750
DL (300 ÷ 80 x 30 x 150 % + 375 000) 543 750
VO (150 ÷ 80 x 130) 243 750
Fixed costs 800 000
Profit 943 750
Question 17 Pad Ltd

ai) Unit contribution = 45 (100 – 15 – 30 – 10)
Total contribution = 450 000 x 45 = 20 250 000
Profit = 20 250 000 – 1 800 000 = 18 450 000
aii)
Revenue (120 000 x 75 + 380 000 x 100) 47 000 000
Less V.Cost
RM (500 000 x 15) 7 500 000
DL (500 000 x 30) 15 000 000
VO (500 000 x 10) 5 000 000 27 500 000
Less Fixed cost 1 800 000
Profit 17 700 000
b) P\v ratio if order is not accepted = 45 ÷ 100 = 0.45 or 45%

BEP = 1 800 000 ÷ 0.45 = $4 000 000
P\v ratio if order is accepted = 19 500 000 ÷ 47 000 000 = 0.4148

BEP = 1 800 000 ÷ 0.4148 = $4 338 440
c) The order should not be accepted because company profit will decrease.
Question 18 Hyde Ltd

a) DM per unit = 3
DW per unit = 4
VPO per unit = 0.4
VDO per unit = 1.2
Actual sales = 30 000 units
a) Alternative 1
New SP = 90 % x 15 = $13.5
Unit contribution = 4.9 (13.5 – 3 – 4 -0.4 – 1.2 )
Total contribution = 40 000 x 4.9 = 19 600
Profit = 196 000 – 50 000 – 20 000 = 126 000
Alternative 2
New sales volume = 36 000 (120 % x 30 000)
Unit contribution = 5.9 (15 – 3 – 4 – 0.4 – 1.2 – 0.5)
Total contribution = 36 000 x 5.9 = 212 400
Profit = 212 400 – 70 000 = 142 400
b) Price to be quoted to break even = 3 + 4 + 0.4 = $7.4
c) Contribution per unit = 23 000 ÷ 5000 = 4.6

Price to be quoted to earn a contribution of $23 000 = $12 (7.4 + 4.6)
Question 19 Barton Ltd
ai) Unit contribution = 65 – 8 – 17 – 11 = 29

Total contribution = 2000 x 29 = 58 000
Profit = 58 000 – 29 400 = 28 600
aii) Revenue (2000 x 65 + 20 000) 150 000

Less V.Cost
DL (2000 x 8) + (600 x 10) 22 000
DM (2 600 x17) 44 200
V.O (2600 x 11) 28 600 94 800
Contribution 55 200
Less Fixed costs 29 400
Profit 25 800
aiii) Revenue (2000 x 65 + 34 000) 164 000

Less V.Cost
DL (2000 x 8) + (750 x 10) 23 500
DM (2 750 x17) 46 750
V.O (2750 x 11) 30 250
Extra processing cost (750 x 6) 4500 105 000
Contribution 59 000
Less Fixed costs 29 400
Profit 29 600
b) Total variable cost of A = 600 x (10 + 17 + 11) = 22 800

Contribution from A = 20 000 – 22 800 = 2800 negative
Total variable cost of B = 750 x (10 + 17 + 11+ 6) = 33 000

Contribution from A = 34 000 – 33 000 = 1000
Question20 Barrow Ltd
ai) Mat per unit 12 (480 000 ÷ 40 000)

Lab per unit 6 (240 000 ÷ 40 000)
V.P Overhead per unit 4 (160 000 ÷ 40 000)
Price per unit to break even = 12 + 6 + 4 = 22
aii) Profit per unit = 30 000 ÷ 12 000 = 2.5

Price per unit to achieve a profit of $30 000 = 22 + 2.5 = $24.5
Selection of Machine
Question 21 Cariokae
a) MACHINE
DATA FOR ORDER P235 A B C
Order quantity 3000 3000 3000
Production rates per hour 100 150 200
Operating hours 30 20 15
Number of operators 4 5 6
Direct labour hours worked
COSTS FOR P235 $ $ $
Direct materials 9000 9000 9000
Direct labour 1260 1050 945
Variable overheads 1440 1200 1080
Set up costs 200 330 600
Total cost 11900 11580 11625
c) NEW DATA FOR P235
MACHINE
A B C
Order quantity 3 000 3 000 3 000
Production rate per hour 120 180 240
Operating hours 25 16.67 12.50
Number of operators 5 67
Direct labour hours worked 125 100 87.50
AMENDED COSTS FOR P235
$ $ $
Direct materials 8 100 8 100 8 100
Direct labour 1 312.50 1 050 918.75
Variable overheads 1 500 1 200 1 050
Setup 200 330 600
11 112.50 10 680 10 668.75
Question 22 Barkis
ai) Total cost using X $6320; Total cost using Y $6420
aii Total cost using X $7850; Total cost using Y $7900
bi) $1780
bii) $2105
Limiting Factor
Question 23 Jardiniere Ltd

a) Contribution per unit Alpha $13; Beta $6; Gamma $14
b) Profit for November $250 000
c) Optimum production plan:
Gamma 10 000 units
Alpha 10 000 units
Beta 2 000 units
Profit $202 000
d) New optimum plan Gamma 10 000 units

Alpha 7 000 units
Beta 5 000 units
Loss in profit $ 21 000
Question 24 Plastic Ltd
a) Light boots contribution per unit: 30 – (10 + 8) = 12

Break-even - units: 42 000/12 = 3 500
- sales revenue: 3 500 x 30 = 105 000
c) Profit = (10 000 x $12 + 12 000 x $14) – 84 000 = 204 000

Light Heavy
d) Unit contribution 12 14
Limiting factor per unit $6 $8
Contribution per limiting factor 2 1.75
Ranking 1st 2nd
$ of cloth available 130 000

Allocated to L 60 000 (10 000 x 6)
Remainder 70 000
Remainder allocated to H 70 000
Number of units of Heavy that can be produced = $70 000 ÷ $8 = 8750

Optimal plan Light 10 000 units
Heavy 8 750 units
Profit = $12 x 10 000 + $14 x 8750 – 84 000 = 158 500
e) Advantages:
Simple to construct and interpret
Easy to explain to non-accountants
Facilitates ‘what – if’ analysis
Useful for comparison with actual performance
Useful for setting production targets and for pricing decisions
Limitations:
Over-simplified
Cost and revenue curves may in reality not be linear
Fixed costs may be stepped
Some costs may not be easily categorised as either fixed or variable (semi-variable costs)
f) Uses of marginal costing for decision making:

Limiting factor, maximising contribution from restricted inputs
Acceptance of special orders
Make or buy
Discontinuing a product or service, based on contribution
Question 25 Skinner ltd

ai) Plan 1 S25 000 units; DL 40 000 units; X 10 000 units
Plan 2 S33 000 units; DL 36 000 units; X 12 000 units
aii) Profit from plan 1 $35 000; Profit from plan 2 $4000
Question 26 Teracota Ltd

G L S
ai) S.P 43 38 36
V.C per unit 30 30 22
Sales in units 4000 3000 2000
aii) Profit = 52 000 + 24 000 + 28 000 – 50 000 = 54 000
G L S
b) S.P 43 38 36
V.C per unit 34 32 24
Limiting factor per unit 4 kg 2 kg 2 kg
Contribution per limiting factor 2.25 3 6
Ranking 3rd 2nd 1st
Kilo available 25 000

Allocated to S 4 000 (2000 x 2)
Remainder 21000
Allocated to L 6 000 (3000 x 2)
Remainder 15 000
Remainder allocated to G 15 000
Number of units of Glass to be produced = 15 000 kg ÷ 4 kg = 3750

Optimal plan G 3750 units
L 3000 units
S 2 000 units
Total contribution = 3750 x $9 + 3 000 x $6 + 2 000 x $12 = 75 750
Profit = 75 750 – 50 000 = 25 750
ci) The product providing a small positive contribution is helping the business to cover its fixed costs, therefore
the business may decide to continue producing the product; if the business discontinued this product, fixed
costs would not change and would still have to be met, therefore profit would fall; the business should only
discontinue this product when it has introduced a replacement product which provides a higher contribution
cii) The product which has a negative contribution is failing to cover even variable costs such as direct materials
and direct labour; immediately discontinuing this product would increase profits; it is making no contribution
towards fixed costs; the business should only consider continuing production of this product if it is seen as
strategically important or if this business has a realistic plant to improve its performance eg reducing
variable costs
Question 27 Blue Skies Ltd

a) Unit contribution: Beach $26; Explorer $48; Family $60
b) Total contribution $4 140 000; Profit $640 000
c) Beach $5.2; Explorer $8; Family $6.6
d) Beach 18 000 units; Explorer40 000 units; Family 24 000 units
e) Contribution: Beach $468 000; Explorer $1 920 000; Family $1 440 000; Profit $328 000
f) Beach 27 000 units; Explorer40 000 units; Family 19 000 units
Contribution: Beach $702 000; Explorer $1 920 000; Family $1 140 000; Profit $262 000
Question 28 Garden supplies ltd

a) African $1; British $2; Chinese $2.5
b) Optimal plan African 0; British 20 000; Chinese 16 666; Profit $21 665
c) Optimal plan African 6000; British 20 000; Chinese 13 666; Profit $20 165
Question 29 Mauvil Ltd

a)
A B C
S.Price 65 64 82
TVC per unit 47 40 62
Hours per unit 3 hrs 2 hrs 4 hrs
Contribution per limiting factor 6 12 5

Ranking 2nd 1st 3rd
Machinist hours available 100 000

Allocated to B 32 000 (16 000 x 2 hrs)
Remainder 68 000
Allocated to A 36 000 (12 00 x 3 hrs)
Remainder 32 000
Remainder allocated to C 32 000
Number of units of C that can be produced = 32 000 hrs ÷4 hrs = 8 000 units
Contribution: A (12 000 x $18) 216 000
B (16 000 x $24) 384 000
C (8 000 x $20) 160 000
Total contribution 760 000
Fixed costs 600 000
Profit 160 000
b) A B C total
S.Price 65 64 82
TVC per unit 50 42 66
Sales in units 12 000 16 000 18 000
Total contribution 180 000 352 000 288 000 820 000
Profit 220 000
Question 30 Beacon ltd

a) Contribution X $78 000; Y $167 750; Z $50 000
Profit $146 000
bi) X 1st ; Y 2nd ; Z 3rd
bii) X 2nd ; Y 1st ; Z 3rd
Questions 31 Shaws Ltd

a) $1 750 000 loss (10 000 000 – 3 750 000 – 3 000 000 – 5 000 000)
b) X Y
S.Price 10 6
Material per unit 3.75 1.25
Other vc per unit 3 2.5
Unit contribution 3.25 2.25
Klacktine per unit (L.Factor) 3 kg 1 kg
Contribution per L.factor 1.08 2.25
nd
Ranking 2 1st
Material available 3 500 000 kg

Allocated to Y 2 000 000 kg 2 000 000 x 1 kg
Remainder 1 500 000 kg
Allocated to X 1 500 000 kg
Number of units of X to be produced = 1 500 000 kg ÷ 3 kg = 500 000 units
Optimal plan: X 500 000 units

Y 2 000 000 units
c) Fixed cost 5 000 000

Contribution from X 1 625 000 (500 000 x $3.25)
Remainder to be recovered from sale of Y 3 375 000
Hence units of Y to be sold = 3 375 000 ÷ $2.25 = 1 500 000 units
Units to be produced and sold to break even X 500 000 units

Y 1 500 000 units
Questions 32 Quango
(a) Statement of profitability – original plan
Product Platinum Gold Silver Bronze Total
Sales quantity 2 000 1 800 1 600 2 400
Unit contribution ($) 118 90 80 83
Total contribution ($) 236 000 162 000 128 000 199 200 725 200
Less fixed overheads 36 000 27 000 19 200 36 000 118 200
Net profit 200 000 135 000 108 800 163 200 $607 000
Fixed overheads P = 0.6 x 30 x 2000 = 36 000
G = 0.6 x 25 x 1800 = 27 000
S = 0.6 x 20 x 1600 = 19 200
B = 0.6 x 25 x 2400 = 36 000
Total 118 200
Variable overheads P = 0.4 x 30 x 2000 = 24 000

G = 0.4 x 25 x 1800 = 18 000
S = 0.4 x 20 x 1600 = 12 800
B = 0.4 x 25 x 2400 = 24 000
Total 78 800
Total overheads = 118 200 + 78 800 = 197 000
New amount of fixed overheads = 1.08 x 118 200 = 126 656
Amount of money remaining to pay for variable overheads = 197 000 – 126 656 = 69 344
Available 69 344
Allocated to Silver 12 800 (1600 x 8)
Remainder 56 544
Allocated to Platinum 24 000 (2000 x 12)
Remainder 32 544
Allocated to Gold 18 000 (1800 x 10)
Remainder 14 544
Remainder allocated to Bronze 14 544
Number of units of Bronze that can be produced $14 544 ÷ $10 = 1454
Optimal plan P 2000 units
G 1800
S 1600
B 1454
(c) Statement of profitability – optimum product mix

Product Platinum Gold Silver Bronze Total
Quantity 2 000 1 800 1 600 1 454
Contribution/unit ($) 118 90 80 83
Total contribution ($) 236 000 162 000 128 000 120 682 646 682
Less fixed overheads ($) 38 880 29 160 20 736 38 880 127 656
Net profit 197 120 132 840 107 264 81 802 $519 026
Product Platinum Gold Silver Bronze

Unit contribution ($) 118 90 80 83
V.overheads per unit 12 10 8 10
Contribution per l.factor 9.83 9 10 8.3
Ranking 2nd 3rd 1st 4th
Questions 33 J.Prime Ltd

a) Product E has to be purchased instead of being produced since the purchase price of $20 is less than the v
ariable production costs of $21 (9 + 4.5 + 0.5 + 7)
D F
S.Price 25 12
Less VC
Raw material 5.6 2.3
Manual operatives 4.9 2.7
Technician 2 1
V.Overheads 6.5 1
Unit contribution 6 5
Hour of technician per unit 0.5 0.25
Contribution per L.Factor 12 20
Ranking 2nd 1st
Technician hour per unit D = $2 ÷ $4 = 0.5 hr
F = $1 ÷ $4 = 0.25 hr
Technician hours available 4000

Allocated to F 2500 (10 000 x 0.25 hr)
Remainder 1500
Remainder allocated to D 1500
Number of units of D that can be produced = 1500 hrs ÷ 0.5 hr = 3000 units
Unit contribution E = 24 – 20 = 4
D E F
Unit contribution $6 $4 $5
Sales in units 3000 24000 10000
Fixed cost (12000) (24000) (20000) (56000)
Profit 6000 72000 30000 108000
Fixed cost D $2 x6000 = 12 000

E $1 x 24000 = 24 000
F $2 x10 000 = 20 000
Total 56 000
b) As a result of restriction on the availability of assembly technician only 3000 units of D can be produced and
sold. Hence the remaining 3000 units cannot be produced. The cost to the company is the lost contribution
from these units
cost = 3000 x $6 = $18 000
Questions 34 Simons
a) Fixed overheads = $ 102 000 (5000 x $8 + 2000 x $10 + 3000 x $14)

Unit contribution for Standard $64; De-luxe $73; Super $87
Total contribution $727 000; Profit for the company $465 000
b) Selling price $250
c) Number of hours required per unit:
Standard 4 hours $16 ÷ $4
De-luxe 5 hours $20 ÷ $4
Super 7 hours $28 ÷ $4
Executive 9 hours
Optimal plan
Standard 5000 units
De-luxe nil
Super 2400 units
Executive 2500 units
Unit contribution for Standard $64; Super $107; Executive $165
Total contribution $989 300; Profit for the company $712 300
Questions 35 Supersmooth
a) BEP: Standard 3100 units\ $37 200
Deluxe 2232 units\ $33 480
b) 7020 profit (25 000 – 12400 – 5580)
c) Standard 5250 units; Deluxe 3200 units
Questions 36 Papa mio
Eratum Option 2: Fulfill the total demand for boardroom and office and use….
a) 45 000 hours (13 000 x 2hrs + 5 000 x 3 hrs + 2 000 x 2 hrs)

c) S O B
Labour hour per unit 2 hrs 3 hrs 2 hrs
Contribution per labour hr 12 7 12
d) S O B
Labour hour per unit 2 hrs 3 hrs 2 hrs
Contribution per labour hr 2 1\3 2
e) Option 1
Units of boardroom = 6 000 + 13 000 = 19 000
Hours required = 19 000 x 2 hrs = 38 000 hrs
Hours available 45 000

Allocated to B 38 000
Remainder allocated to S 7 000
Number of units of Standard that can be produced = 7000 hrs ÷2 hrs = 3500 units
Option 2
Units of boardroom = 6 000 + 13 000 = 19 000
Units of Office = 1 000 + 1 000 = 2 000
Hours available 45 000

Allocated to B 38 000
Allocated to office 6 000
Remainder allocated to S 1 000
Number of units of standard that can be produced = 1000 hrs ÷2 hrs = 500 units
Since this is less than 2000, hence will be discontinued as per directors’ decision
Option 1 Option 2
Boardroom UK 144 000 144 000
Africa 52 000 52 000
Standard UK 24 000 -
Africa 10 000 -
Office Uk - 21 000
Africa - 1000
Fixed cost 200 000 200 000
Profit 30 000 18 000
Questions 37 Moon Ltd

a) Unit contribution of flower pot $16; Profit $110 000
b) Profit $137 500; Contribution flower $240 000 (15 000 x $16); Contribution garden $77 500 (3750 x $18 +
1000 x $10)
Chapter 28: Budgets
Question 1 Gala Ltd
1 2 3 4 5 6
Production 950 1050 1350 1100 850 850
Purchases (Kg) 1900 2100 2700 2200 1700 1700
Purchases ($) 7600 8400 12 150 9900 7650 8500
Sales budget ($) 152 000 199 500 266 000 220 000 190 000 170 000
d) Trade Receivables $275 500
e) Trade Receivables Budget: Closing balances
- September 365 750 -

October 353 000 -
November 300 000 -
December 265 000
Question 2 Jenifer Stewart

a) Cash budget
July Aug Sept Oct Nov Dec
Cash sales 4900 8820 12740 9800 8820 11760
Credit sales - - 7500 13500 19500 15000
Total payments 44 400 4400 22200 33900 23900 31700
Closing balance 500 4920 2960 (7640) (3220) (8160)
b) Budgeted Income Statement c) Budgeted Balance sheet

$ $
Revenue 145 000 Total NBV of NCA 14 400
Purchases 116 000 Total Current assets 53 000
Closing Inventory 29 000 Total Current Liabilities 29 660
Total Expense 17 760 Total Non-Current Liabilities 15 000
Profit 11 240
Question 3 Harold Ltd

Total Receipts: July 27 240
August 18 912
September 14 256
Total Payments: July 15 820

August 15 220
September 18 720
Closing Balance: July 15 320

August 19 012
September 14 548
Question 4 Glora
a) Production 1 2 3 4 5 6
2100 2400 1500 1200 1400 1600
b ) Purchases Budget 1 2 3
3 900 kg 2 700 kg 2 600 kg
c) Total Receipts $ Total Payments $ Closing balances $

1 102 000 82 200 29 800
2 97 000 72 700 54 100
3 99 500 53 300 100 300
Question 5 Smith
a) Jan Feb Mar April May Jun
Total Receipts 25 400 600 1 750 2 200 2 900 3 550
Total Payments 24 510 1 860 1 980 2 340 2 760 3 460
Closing Balance 890 (370) (600) (740) (600) (510)
b) $ $
Revenue 16 500 Total NBV of NCA 23 750
Purchases 11 410 Total Current assets 6 310
Closing Inventory 910 Total Current Liabilities 2 970
C.O.S 10 500
G.P 6 000
Total Expense 2 710
Profit 3590
Question 6 Svensen
b) Income Statement SOCIE –Bal at end
Revenue 132 000 Ordinary share 200 000
Purchases 63 000 Share Premium 15 000
Gross Profit 70 000 Retained Profit 41 000
Total exp 60 250
Profit 9 750
Total NBV of NCA 212 550

Question 7 Echoes
Bank
$000 $000
Debtors prior year 122 Balance 15
Debtors first month Creditors
(1160 × 0.5 × 0.95) 551 (75 + 680 – 90) 665
Debtors second month Rates 18
(1060 × 0.5) 530 Insurance 30
Sale of vehicles 80 Purchase of vehicle 400
Sale of eqpt 75 Purchase of eqpt 310
Debentures 300 S,d,a expenses 184
Share issue 170 Tax 30
Dividend 48
Interest 15
Balance 113
1828 1828
Forecast income statement for the year ending 30 April 2012
$000 $000
Sales 1 260
Opening inventory 150
Ordinary goods purchased 680
Closing inventory 165
Cost of sales 665
Gross profit 595
Profit on sale of equipment 5
Less expenses
Discount allowed 29
Rates and insurance 42
Loss on sale of vehicles 15
Depreciation –
Land and buildings 10
Equipment 85
Vehicles 120
S,d,a expenses 184 485
Profit from operations 115
Finance charges 15
Tax 20
Profit for the year 80
(c)
Forecast Statement of Financial Position at 30 April 2012
Cost Dep NBV
Non-current assets
Land and buildings 1 200 60 1 140
Equipment 425 130 295
Vehicles 400 120 280
2 025 310 1 715
Current assets
Inventory 165
Trade receivables 150
Prepaid rates and insurance 14
Cash and cash equivalents 113
442
Current liabilities
Tax 20
Trade payables 90 110 332
Non-current liabilities
Debentures 300
1 747
Ordinary shares of $0.50 each 850
Share premium 220
Retained earnings 677 (645 + 80 – 48)
1 747
Question 8 Cern Ltd

a) Production budget in units – Month 1: 10000 units; Month 2: 11000 units; Month 3: 12000 units; Month 4: 12000
units; Month 5: 10000 units.
b) Purchases budget in units – Month 1: 10500 units; Month 2: 11500 units; Month 3: 12000 units; Month 4: 11000
units.
c) Receipts from cash sales – Month 1$ 57000; Month 2 $57000; Month 3 $62700; Month 4 $68400
Receipts from customers on 1 month credit - Month 1 nil ; Month 2 $139500; Month 3 $139500; Month 4
$153450
Receipts from customers on 2 month credit - Month 1 nil ; Month 2 nil; Month 3 $96000; Month 4 $96000.
Total payments - Month 1 $1217500 ; Month 2 $266000; Month 3 $282000; Month 4 $299500
Closing balance - Month 1 $839500 ; Month 2 $770000; Month 3 $786200; Month 4 $804550
d) Closing inventory of raw materials $50000; Closing inventory of finished goods $240000; Trade receivables
$393600; trade payables $110000.
Question 9 Fancy Ltd Eratum: Adj 3 Loan amount of $60 000 missing in the Question
Adjustment number 10 instead of month it should be year
$
Revenue 1 500 000
Less Cost of sales
Purchases (B.Figure) 1 080 000
Gross profit (0.4 x 1 500 000) 600 000
Expenses
Interest on loan (.08 x 60 000) 4800
Operating expenses (25 000 x6 + 30 000x6) 330 000
Dep Property (120 000 ÷ 20) 6000
Dep Plant and machinery (190 000 ÷5) 38 000
Dep M. Vehicles (50 000 ÷ 4) 12 500 391300
Profit for the year 208700
Closing inventory = Cost price of sales January and February 2001

=(150 000 + 150 000) x 0.6 = 180 000
Bank Account
Share capital 250000 Property 120000
Loan 60 000 P & Machinery 190000
T.receivables 1 290 000 M. Vehicles 50 000
Directors’ Loan (B.Figure) 71 800 Interest 4800
Operating expenses 300 000
T.Payables 990 000
Loan 12 000
Bal c\d 5000
Operating expense paid = 25 000 x 6 + 30 000 x 5 = 300 000
T.Receivables at 31 Dec = Sales of Dec + 40 % sales of Nov
= 150 000 + 0.4 x 150 000 = 210 000
Receipts from customers = 1500 000 – 210 000 = 1 290 000
Sales at cost for Dec = 0.6 x 150 000 = 90 000

Sales at cost for Jan = 0.6 x 150 000 = 90 000
Sales at cost for Feb = 0.6 x 150 000 = 90 000
Closing inventory Nov = 90 000 + 90 000 = 180 000

Closing inventory Dec = 90 000 + 90 000 = 180 000
Purchases Budget for Dec

Closing inventory 180 000
Add Sales at cost price 90 000
Less Opening inventory 180 000
Purchases 90 000
Trade payables at 31 Dec = 90 000 (purchases of Dec)
c) Total NBV of NCA $303 500 (114 000 +152 000 + 37 500); Total CA $395 000 (180 000 + 210 000 + 5000); Total CL
$120 000 (90 000 + 30 000); Total NCL $119 800 (48 000 +71 800)
Question 10 Gordon Ltd
Question 11 Ada Campellini

a) Total receipts: Nov $254 012.5; Dec $331 175; Jan $272 212.5
Total payments: Nov $230 540; Dec $219 095; Jan $186 130
Closing bank balance: Nov $58 322.5; Dec $170 402.5; Jan $256 485
b) Revenue $930 000; Purchases $515 000; Cost of sales $566 000; Gross profit $364 000; Discount received $10 740;
Discount allowed $35 100; Total expenses $95 580; profit $279 160
Question12 P.Blowers
a) Cash Budget
Bal b\d 10000 Trade payables 240100
Trade receivables 480 800 Rent 3200
Disposal 1100 Wages 21600
Insurance 1500
Other expenses 2400
Equipment 3000
Van 8000
Drawings 12000
Bal c\d 200100
491900 491900
b) Revenue $522 000; Purchases $261 000; Cost of sales $258 500; G.Profit $263 500; Total expenses $31 100; Profit
for the year $232 400
Total NBV of NCA $12 200 (4200+8000); Total CA $255 700; Total CL $24 000
Question 13 Harry
Receipts Nov Dec Jan
Cash sales 60800 97280 36480
Credit sales : 1 month 44850 78000 124800
: 2 months 4600 4600 8000
Total receipts 110200 179880 169280
Payments
Supplier: same month 26000 39000 25000
1 month later 114075 73125 58500
Overheads 500 550 605
Wage 4720 5664 4000
Machine 1000
Interest 20 20 10
Drawings 600 600 600
Total payments 145915 118959 89715
Closing balance (71715) (10794) 68771
Question 14 Buncles Eratum: Adj 6 wages should be $7 000 instead of $70 000
Adj 5 change 40 % to 25 % to avoid decimal in calculations
a)
Receipts Oct Nov Dec Jan
Cash sales 27 300 28 000 29 400 26 250
Credit sales : 1 month 45 570 45864 47 040 49 392
: 2 months 3805 3875 3900 4000
Total receipts 76 675 77 739 80 340 79 642
Payments
Suppliers 64 000 67 200 60 000 60 800
Wages 7 000 7 350 7 350 7 350
Bonus 300 320 400 560
Other expenses 6000 6000 6420 6420
Non-current assets - - 16 000 -
Dividend - - 24 000 -
Total payments 77 300 80 870 114 170 75 130
Opening balance 4000 3375 244 (33 586)
Closing balance 3375 244 (33 586) (29 074)
Receipts from credit sales on 1 month credit

In Oct = 0.6 x 77 500 x 0.98 = 45 570
In Nov = 0.6 x 78 000 x 0.98 = 45 864
In Dec = 0.6 x 80 000 x 0.98 = 47 040
In Jan = 0.6 x84 000 x 0.98 = 49 392
Receipts from credit sales on 2 month credit

In Oct = 0.05 x 76 100 = 3805
In Nov = 0.05 x 77 500 = 3875
In Dec = 0.05 x 78 000 = 3900
In Jan = 0.05 x80 000 = 4000
Calculation of sales at cost price

Oct = 78 000 ÷ 125 x 100 = 62 400
Nov = 80 000 ÷ 125 x 100 = 64 000
Dec = 84 000 ÷ 125 x 100 = 67 200
Jan = 75 000 ÷ 125 x 100 = 60 000
Feb = 76 000 ÷ 125 x 100 = 60 800
Mar = 77 000 ÷ 125 x 100 = 61 600
Purchases (goods are bought two month before they are sold)
September $64 000 (sales at cost price for Nov)
October $67 200
November $60 000
December $60 800
January $61 600
c) Inventory $108 859; Trade receivables $52 950; Trade payables $61 600; Bonus owing $200; Bank overdraft
$29 074
Trade receivables at 31 Jan 2001 = 5 % sales of Dec + 5 % sales of Jan + 60 % sales of Jan
= 0.05 x 84 000 + 0.05 x75 000 + 0.60 x 75 000 = 52 950
Purchases Budget
Oct Nov Dec Jan
Opening inventory 112 859 117 659 113 659 107 259
+ Purchases 67 200 60 000 60 800 61 600
-Sales at Cost 62 400 64 000 67 200 60 000
Closing inventory 117 659 113 659 107 259 108 859
Question 15 Sogo Ltd

a) Purchases in units July 10 500; Aug 12 000; Sept 9 000; Oct 10 000; Nov 8 500; Dec 9 000
b) Total receipts Sept $981 250; Oct $1 112 500; Nov $1 031 250; Dec $987 500
Total payments Sept $1 197 000; Oct $987 000; Nov $994 000; Dec $1 436 000
Closing balances Sept ($191 750); Oct ($66 250); Nov ($29 000); Dec ($477 500)
Question 16 Jax Ltd

Receipts Mar April May
Cash sales 3880 4365 4850
Credit sales : 1 month 10920 10920 12285
: 2 months 3850 4400 4400
Total receipts 18650 19685 21535
Payments
Supplier: same month 2646 2940 3528
Labour cost: Wage 3600 4000 4800
Bonus* 100 200 400
V.Overheads 1600 1800 2000
Selling expenses 2400 2700 3000
Rent - - 1230
Other fixed overheads 1390 1390 1390
Machine 3000 - 1000
Total payments 14736 13030 17348
Closing balance (4086) 2569 6756

Workings
Cash sales = 20 % of monthly sales less 3 % discount
Calculation of receipts from customers on 1 month credit

Credit sales = 80 % of monthly sales
Receipts after 1 month = 70 % of credit sales 1 month earlier minus 2.5 % discount
Receipts in March = 0.7 x $16000 x 0.975 = 10920
Receipts in April = 0.7 x $16000 x 0.975 = 10920
Receipts in May = 0.7 x $18000 x 0.975 = 12285
Bad debts = 2 % of monthly sales

Bad debts for sales of Jan = 0.02 x $17500 = 350 - deducted when calculating receipts two month later i.e in Mar
Bad debts for sales of Feb = 0.02 x $20000 = 400 - deducted when calculating receipts two month later i.e in Apr
Bad debts for sales of Mar = 0.02 x $20000 = 400 - deducted when calculating receipts two month later i.e in May
Calculation of receipts from customers on 2 month credit = 30 % of credit sales 2 months earlier minus bad debts
Receipts in March = 0.3 x $14000 - 350 = 3850
Receipts in April = 0.3 x $16000 - 400 = 4400
Receipts in May = 0.3 x $16000 - 400 = 4400
Feb Mar Apr May

Production in units 800 900 1000 1200
Production requirement (kg) 2400 2700 3000 3600
Purchases (kg) 2700 3000 3600
Purchases ($) $1 per kg 2700 3000 3600
Payment to suppliers: Mar = 0.98 x $2700 = 2646

April = 0.98 x $3000 = 2946
May = 0.98 x $3600 = 3528
*It is assumed that bonus is paid only on units produced in excess of 800
Other production overheads [33600 – 12000 – 4920] ÷ 12 =1390
Chapter 29: Standard costing and variance analysis
Question 1 Chang Ltd

Direct material price variance = $450 A
Direct material usage variance = $975 F
Total direct material variance = $525 F
Question 2 Barta Ltd

Direct material price variance = $153 A
Direct material usage variance = $25 F
Total direct material variance = $128 A
Question 3 Craft
Direct labour rate variance = $135 A
Direct labour efficiency variance = $475 F
Total direct labour variance = $340 F
Question 4 Tiger Ltd
Direct labour rate variance = $11.6 F
Direct labour efficiency variance = $9.5 A
Total direct labour variance = $2.1 F
Question 5 Santa
Sales price variance = $22 500 A
Sales volume variance = $ 45 000 F
Total sales variance = $ 22 500 F
Question 6 Lepar Ltd

Sales price variance = $3 480 F
Sales volume variance = $3 880 F
Total sales variance = $7 360 F
Question 7 AFC Ltd

Sales price variance = $42 750 F
Sales volume variance = $178 000 A
Total sales variance = $135 250 A
Question 8 Ravon Ltd

(a) Direct material price variance = $1 590 F
Direct usage variance = $800 F
Total direct material variance = $2 390 F
(b) Direct labour rate variance = $79.2 F

Direct labour efficiency variance = $972 A
Total direct labour variance = $892.8 A
(c) Total standard cost = $52 920

Total actual cost = $51 422.8
Question 9 Motoworld Ltd

(a) Direct material price variance = $1725 A
Direct usage variance = $6300 F
Total direct material variance = $4575 F
(b) Direct labour rate variance = $590 F

Direct labour efficiency variance = $17920 F
a) Standard cost for actual production $166 920

Actual cost $143 835
Question 10 Aston Ltd

(a) Direct material price variance = $14 700 A
Direct usage variance = $29 983.3 A
Total direct material variance = $44 683.3 A
(b) Direct labour rate variance = $85.2 A

Direct labour efficiency variance = $370.2 F
Question 11 Relham
ai) $1100 A
aii) $1050 F
aiii) $3000 F
aiv) $900 A
Question 12 Lim Ltd

a) Sales volume var $40000 Adv
Sales price var $10000 Adv
Total sales var $50 000 Adv
Direct material price variance = $2700 adv
Direct material usage variance = $3200 Fav
Total RM var $500 fav
Direct labour rate variance = 600 F
Direct labour efficiency variance = $5600 Adv
Total labour var $5000 Adv
b) Budgeted contribution $98880
Question 13 LBC Ltd

(a) Budgeted profit = $52 000
(b) Quantity variance = $12 000 F
(c) i) Direct material price variance = $21 000 A
Direct material usage variance = $12 000 F
ii) Direct labour rate variance = $7 200 F
Direct labour efficiency variance = $36 000 A
iii) Sales price variance = $24 000 A
(d) Actual Loss = $9 800
Question 14 Tremix Ltd Eratum Std hours for finishing dept should be 1.5 instead of 2.5
Change polishing to finishing
ai) $1885 A
aii) $8300 A
aiii) $6415 F
bi) $48 000 A
bii) $27 000 A
biii) $21 000 A
ci) $20 000 hours
cii) $3.68
ciii) $1600 A
Question 15 Kamma
a) Budgeted production of 8 500 units = $22 500
Budgeted production for 8 200 units = $21 000
Actual production of 8 200 units = $57 940
b) i) Sale price = $28 700 F

ii) DM price = $1 540 A
iii) DM usage = $ 5 000 F
iv) DL rate = $2 380 F
v) DL efficiency = $2 400 F
vi)Quantity = $1 500 A
Question 16 John Brown
Material price variance: P $1 320 A

Q $720 F
Material usage variance: P $90

Q NIL
Labour rate variance = $300 A

Labour efficiency variance = $1 200 F
Standard costing = $30 600
Question 17 Criel Ltd

Question 18 Laxio Ltd
a) DM price var $240 000 F; DM usage var $68 400 A
b) DL rate var $30 000 F; DL efficiency var $58 080 A
c) Standard cost $1 493 520; Actual cost $1 350 000
Question 19 Mexus Ltd

ai) Mat price var $105 000A; Mat usage var $48 000F
aii) Lab rate var $nil; Lab efficiency var $48 000A
b) Budgeted cost $840 000; Actual cost $945 000
Question 20 Buraco Ltd

a) $7150 standard profit
b) $5796 actual profit
ci)Sale price var = $550 A; Sales volume Var $2580F
ii) DM price var = $314 A; DM Usage var $480 F
iii) DL rate = $720 A; DL efficiency var = $150 F
iv)Quantity var = $390 F
Question 21 Ridgeway Ltd

ai) $7.37 per machine hour
aii) $10.96 per labour hour
aii) 65.5 % of total DM cost or $0.65 per $ of material
b) $106.37 (30.8 + 18 +22.11) x 150 %
di) $2760 A
dii) $1640 A
diii) $1120 A
div) $440 A
dv) $2000 F
dvi) $1560 F
e)$81.52
Chapter 30: Investment Appraisal
Question 1 Entel Ltd

a) Year Annual NCF
0 (135 000)
1 35 000
2 35 000
3 35 000
4 35 000
5 70 000
b) Payback period 3 years and 10.3 months
c) NPV $28 590
d) Discounted payback 4 years and 4.8 months
e) IRR 14.78 %
f) ARR 17.65 %
Question 2 Bradley Ltd

(a) Net present value = $203 776, Yes acceptable since positive NPV
(b) Discounted payback = 3 years 7.05 months
(d) Internal rate of return = 17.007%
Question 3 Clothing company
a) Year Annual NCF

0 (250 000)
1 60 000
2 110 000
3 96 800
4 17 500
b) Payback Period 2 years and 9.9 months
c) ARR 6.86 %
d) NPV $19 950.7 negative
e) Cannot be calculated
f)IRR 4.92 %
Question 4 Peacock Ltd (take useful life of machine to be 3 years with nil scrap value)
a) Total production costs: Year 1 $135 000; Year 2 $162 000; Year 3 $194 400
b) Annual NCF Year 0 ($146 000); Year 1 $71 250; Year 2 $85 500; Year 3 $43 200
NPV $9051
c) Discounted payback 2 years and 8.18 month
d) IRR 18 .99%
Financial considerations:
• machine has reduced production costs ;machine has increased output ;potentially could lead to more sales and
more profit
• the net present value calculation gives a positive result which is supportive of purchase but is based on estimates
of future cash flows and cost of capital which may be inaccurate
• NPV should not be used in isolation – should use other techniques example payback ;payback is 1 year 320
days;how quickly the money is recouped has a bearing on risk
• what is the source of the funding for the purchase price? is the money available?
has the money borrowed been secured on assets?
• extra costs, e.g. legal costs could be involved in protecting their reputation against the activities of
action/green/environmentalists which will reduce profits
• shareholders may sell their shares once they discover the waste disposal methods which may reduce the share
price .
Non-financial considerations:
• there may be extensive action against the company by environmental groups which may be reported in the media
and affect the reputation of the company
• this may give competitors the competitive edge
• the company is acting against laws aimed at protecting the environment
• negative effect on wildlife
• could cause health problems
• effect on workforce of new machine/training implications maximum
.
Question 5 Makeit Ltd
(a) Accounting rate of return = 13.95 %
(b) Discounted payback = 4 years 6.9 months
(c) Internal rate of return = 14.57 %
Question 6 Mr X
Annual NCF Year 0 ($11000); Year 1 ($5620); Year 2 $5148; Year 3 $6002; Year 4 $5852; Year 5 $9198
a) Payback 3 years and 11.2 months
b) NPV $2361
c) IRR $15.28
Question 7 Qadir Cricket Club ( there is an error in the original question and reproduced in the book concerning
the PV of $1 for the 5th year , it should be 0.567 instead of 0.507
a) Year ANCF
0 (203 600)
1 65 400
2 168 500
3 282 300
4 406 760
5 547 302
Net cash flow generated = 1 266 662
b) NPV (using 0.567) $759 114; NPV (using 0.507) $726 275.77
c) Discounted payback (using 0.567) 2 years 0.65 months; Discounted payback (using 0.507) 2 years 0.648 months
Question 8 Ghosh Ltd

ai) Annual NCF
Year A B
0 (150000) (140000)
1 52 000 49 000
2 52 000 49 000
3 52 000 49 000
4 52 000 49 000
aii) ARR : A 17.06 %; B 15.9 %
aiii) Payback: A 2 years 10.6 months; B 2 years 10.3 months
b) NPV of Project A $14 788
Question 9 Star Ltd
ai) Annual net cash flow
Year A B
0 (180 000) (205 000)
1 56 000 70 000
2 57 000 70 000
3 60 000 69 000
4 51 000 55 000
5 57 000 48 000
Payback period Product A 3 years 1.65 months; Product B 2 years 11.3 months
aii) NPV Product A $33 276; Product B $35 642
aiii) ARR Product A 21.3 %; Product B 20.9 %
Question 10 Ekulrac Taxi

Annual net cash flow
Year A B C
0 (30 000) (35 000) (40 000)
1 9 000 7960 8480
2 9000 7960 8480
3 8500 7760 8380
4 8300 7460 8280
5 15000 16260 19080
a) Net present Value A $8019; B $843; C $351 negative
b) Payback A 3 years 5.06 months; B 4 years 2.8 months; C 4 years 4 months
c) ARR for Axis 21.4 %
Question 11 JR
Calculation of annual net cash flow assuming the existing machine is used
Year Scrap value sales D.Labour D.Material & V.Overheads ANCF
05/06 - 630000 140000 330000 160000
06/07 - 630000 140000 330000 160000
07/08 - 630000 140000 330000 160000
08/09 - 630000 140000 330000 160000
09/10 10000 630000 140000 330000 170000
Number of machine hours = 50 weeks x 5 days x 8 hours

Annual D.Labour = 2000 hours x $70 = $140 000
Annual D.material and V.overheads = 60 000 chairs x (2 + 3.5) = $330 000
Note: the investment cost of the existing machine is an irrelevant cost since it is a sunk cost
Calculation of annual net cash flow assuming the replacement machine is bought
Year Investment & sales D.Labour D.Material & V.Overheads ANCF
Scrap value
0 (250 000) (220000)
+ 30000*
05/06 - 735000 140000 373000 222000
06/07 - 735000 140000 373000 222000
07/08 - 735000 140000 373000 222000
08/09 - 735000 140000 373000 222000
09/10 5000 735000 140000 373000 227000
* The scrap value of the existing machine is a cash inflow if the replacement machine is bought.
New production = 60 000 + (2000 hrs x 5) = 70 000 chairs
New annual sales = 70 000 x $10.5 = $735 000
Revised D.Material per chair 90 % x $2 = $1.8
Revised D.M and V.O per annum = 330 000 + 10 000 x (2.5+1.8) = $373 000
Calculation of incremental annual NCF

Year ANCF with replacement machine ANCF with existing machine Incremental ANCF
0 - (220000) (220000)
1 160000 222000 62000
2 160000 222000 62000
3 160000 222000 62000
4 160000 222000 62000
5 170000 227000 57000
Alternatively the incremental annual NCF can be calculated as follows

Year Investment & Incremental Incremantal Incremental ANCF
Scrap value sales Material & V.Overheads
0 (250 000) (220000)
+ 30000
05/06 - 105000 43000 62000
06/07 - 105000 43000 62000
07/08 - 105000 43000 62000
08/09 - 105000 43000 62000
09/10 5000 105000 43000 57000
(10000)*
Incremantal sales = 735 000 – 630 000 = 105 000

Incremental material and variable overheads = 373 000 – 330 000 = 43 000
Note
1. Labour cost is the same under both options and therefore it is a common cost. Common costs are not
relevant for decision making. (refer to chapter 27)
2. The scrap value of the existing machine at the end of year 6 is an opportunity cost ( value of benefit
sacrificed as a result of replacing the existing machine)
Calculation of Payback
Year Incrementl ANCf Cummulative incremental ANCF
0 (220000) (220000)
1 62000 (158000)
2 62000 (96000)
3 62000 (34000)
4 62000 28000
5 57000
34000 ÷62 000 x12 6.58
Payback = 3 years 6.58 months
Calculation of NPV
Year Incrementl ANCf D.Rate 14 % present value
0 (220000) 1 (220000)
1 62000 0.877 54374
2 62000 0.769 47678
3 62000 0.675 41850
4 62000 0.592 36704
5 57000 0.519 29583
NPV (9811)
IRR = 12.23 %
Question 12 Game Ltd

ai) Annual NCF
Year A B
0 (320000) (375000)
1 100 000 113 000
2 112 000 164 000
3 127 000 132 000
4 144 000 156 000
aii) Payback: A 2 years 10.2 months; B 2 years 8.9 months
aiii) NPV: A $66000; B $79 061
aiv) ARR: A 12.73 %; B 12.67 %
Question 13 Inter Ltd

ai) Payback - Project A 1 year 5.14 months; Project B 1 year 4.7 months
aii NPV - Project A $151 875; Project B $152 534
aiii) ARR – Project A 96.8 %; Project B 93 .3 %
Question 14 Arsen Football Club

Eratum the PV of $1 for the 5th year at 12 % should be 0.567 instead of 0.507
a) Annual net cash flow
Year Jim John
0 (200 000) (100 000)
1 150 000 200 000
2 150 000 200 000
3 150 000
4 150 000
5 150 000
Net cash flow 550 000 300 000
b) NPV Jim $340 750 ; NPV John $238 000

c) IRR Jim 43.66 %; IRR John 73.03 %
Question 15 Polton
a)
Annual NCF
Year Proposal 1 Proposal 2
0 (420 000) (300 000)
1 138 000 122 000
2 120 000 104 000
3 129 800 113 800
4 198 000 182 000
b) NPV Proposal 1 $37 276; Proposal 2 $106 572

c) Discounted payback for proposal 1: 3 years and 8.7 months
Chapter 31: Process Costing

Question 1
a) Cost transferred from P1 to P2 = $64 800
Cost transferred from P2 to finished goods = $113 400
b) P1 = $32.4
P2 = $63
Question 2
a) Cost transferred from PA to PB = $109 125
Cost transferred from PB to finished goods = $172 725
b) Unit cost: Process A = $24.25
Process B = $38.38
Question 3
a) Cost transferred from P1 = $84 000
Cost of WIP P2 = $14 880
Cost of finished goods transferred = $155 520
b) Cost of 1 completed unit from: P1 = $14
P2 = $28.8
c) Cost of 1 unit of WIP = $24.8
Question 4 ‘ Kiwi’
a) Process X $ Process Y $
Material cost 25 000 Process X 32 000
Labour cost 6 900 Material 4 200
V. Overhead 4 140 Labour 7 000
F. Overhead 2 760 V. Overhead 1 750
Cost of WIP 6 800 F. Overhead 1 400
Cost transferred to PY 32 000 Cost transferred to f. goods 46 350
b) Cost of 1 complete unit from PX = $45.7

PY = $66.2
c) Cost of 1 unit of WIP in PX = $34
Question 5 ‘ Klactine’
a)
Process P $ Process Q $
Material 54 000 Process P 97 050
Labour 15 750 Material 22 800
Cost transferred to process Q 97 050 F. Overhead 8 250
Scrap value of N. loss 2 625
Cost of WIP 21 600
Cost transferred to f.goods 124 500
b) Cost of 1 completed unit: Process P = $32.35

Process Q = $55.33
Cost of 1 unit of WIP in Process Q = $43.2
Question 6 Clyde Ltd

a)
Process S $ Process T $
Material 96 000 Process S 312 000
Cost transferred to process T 312 000 F. Overhead 26 000
Cost of WIP 50 272
b) Cost of completed unit: Process S = $42.74

Process T = $71.74
Cost of 1 unit of WIP from Process T= $62.84
Question 7 Caramel Ltd

Eratum process 2 direct labour per unit should be 1.5 hours
a)
Process 1 $ Process 2 $
Material 500 000 Process 1 1 732 800
Cost transferred to process 2 1 732 800 F. Overhead 228 000
Cost of WIP 49 978
Cost transferred to f.goods 2 865 572
Process 3: Cost transferred to F.goods = $4 419 952
b) Cost of 1 completed unit: P1 = $44.66

P2 = $75.41
P3 = $116.31
Cost of 1 unit of WIP = $62.47
Question 8 Clumber
Eratum process 2 direct labour per unit should be 1.5 hours
a) Process 1 a\c: Mat 300 000
Lab 1 800 000
VO 1 200 000
FO 250 000
Process 2 a\c: Process 1 3 544 0000

Mat 192 800
Lab 717 000
VO 466 050
FO 376 000
Bal c\d 141 272
Transfer to P3 5 154 578
bi) Cost of 1 completed unit from P 1 =72.92
bii) Cost of 1 completed unit from P 2 =109 .67
c) Transfer to finished goods = 6 931 728
d) Cost of 1 completed from P3 = 147.48
e) Profit margin = 33.83 %
Question 9 Laurus
Material 12 000 Process 1 152 000
Cost transferred to process 2 152 000 F. Overhead 30 800
Cost of WIP 125 650
Question 10 Cernox
a)
Material 80 000 Process 1 175 225
Variable overhead 36 800 Labour 41 750
Fixed overhead 18 400 Variable overhead 25 050
Scrap value 1 175 Fixed overhead 16 700
Cost of WIP 14 000 Scrap value 4 900
Transfer to P2 175 225 Transfer to F.goods 284 356
Cost of WIP 20 469
b) Cost of 1 complete unit from: Process 1 = $20.6147

Process 2 = $37.91
Cost of 1 unit of closing WIP from: Process 1 = $14
Process 2 = $34.115
Question 11 Atwood
a)
i) 10 000
ii) $6 per labour hour
iii) $2 per labour hour
iv) $3.5 per unit
v) 15 %
b)
i) 7 800 units
ii) $546 459
iii) $42 916
Question 12 RJP Ltd

Unit cost statement Process 1
Cost element Completed Wastage Spoilage Equivalent Cost Unit cost
production production
Material 90 000 8 000 2 000 100 000 130 000 1.3
Labour 90 000 - 2000 92 000 184 000 2
v.overhead 90 000 - 2 000 92 000 55 200 0.6
Completed production = 100 000 – 8000 – 2000 = 90 000

Fixed cost P1 = 2000 ÷ 7000 x 28 000 = 8000
Scrap value = 2 000 x .06 = 1200
Process 1 A\c
Material 130 000 Scrap value 1200
Labour 184 000 Process 2 188 000
V.overheads 55 200 Process 3 150 400
F.overheads 8 000 F.Goods 37 600
377 200 377 200
Transfer to process 2 = 0.5 x (377 200 – 1200) = 188 000

Transfer to process 3 = 0.4 x (377 200 – 1200) = 150 400
Transfer to finished goods = 0.1 x (377 200 – 1200) = 37 600
Cost of 1 completed kilo from p1 = 377 200 – 1200 ÷ 90 000 = $4.1778

Kilo transferred to P2 = 0.5 x 90 000 = 45 000
Kilo transferred to P3 = 0.5 x 90 000 =36 000
Kilo transferred to finished goods = 0.1 x 90 000 = 9000
Unit cost statement Process 2

Cost element Completed Wastage Spoilage Equivalent Cost Unit cost
production production
Process 1 43 375 1000 625 45 000 188 000 4.1778
Labour 3 375 - 625 44 000 66 000 1.5
v.overhead 43 375 - 625 44 000 5 500 0.125
Completed production = 45 000 – 1000 -625 = 43 375

Fixed cost P2 = 3000 ÷ 7000 x 28 000 = 12000
Scrap value = 625 x .06 = 375
Process 2 A\c
Process 1 188 000 Scrap value 375
Labour 66 000
V.overheads 5500
F.overheads 12 000 F.Goods 271 125
271 500 271 500
Unit cost statement Process3

Cost element Completed Wastage Spoilage Equivalent Equivalent Cost Unit cost
production closing production
WIP
Process 1 34 170 500 330 1000 36 000 150 400 4.1778
Labour 34 170 - 330 300 34 800 45 240 1.3
v.overhead 34 170 - 330 300 34 800 6 960 0.2
Completed production = 36 000 – 500 – 330 - 1000 = 34 170

Fixed cost P2 = 2000 ÷ 7000 x 28 000 = 8000
Scrap value = 330 x .06 = 198
Closing WIP P1 (1000 x 4.1778) = 4178

Labour (300 x 1.3) = 390
V.Overheads (300 x 0.2) = 60
4628
Cost of wastage in Process 3 = 500 x 4.1778 = 2089

If the cost of wastage is shared between the Closing WIP and good production then closing WIP will increase by $58
(1 000 ÷ 36 000 x 2089). Hence cost of closing WIP will be 4628 + 58 = 4686 (4687 given in marking scheme Nov
2009 p42)
Process 3 A\c
Process 1 150 400 Scrap value 198
Labour 45 240 F.Goods 205 774
V.overheads 6960 Bal c\d 4628
F.overheads 8 000
210 600 210 600
Cost of 1 completed kilo from p2 = 271 125 ÷43 375 = $6.25

Cost of 1 completed kilo from p3 = 205 774 ÷ 34 170 = $6.02
Question 13 DC Ltd
a) 63 000 units
b)
Process 1 A\c
Material 1 120 000 Scrap value 140 000
Labour 2 100 000 Process 2 4 480 000
V.overheads 1 260 000
F.overheads 140 000
Question 14 Isko Ltd
a) Transfer to Process Y $135 000
Closing WIP $10 300
b)(i) Transfer to F.goods $287 700

Closing WIP $18 900
(ii) Transfer to F.goods $288 461

Closing WIP $18 139
c) Cost of one completed unit from Process X $30
Cost of one completed unit from process Y using FIFO $56.41
Cost of one completed unit from process Y using AVCO $56.56
Question 15 Lutosa Ltd

Process A: Bal b\d $6376; Material $54360; Labour $ 97120; V.Overheads $43704; F.Overheads $24280; Transfer to
Process B $220 956; Bal c\d $4884
Process B: Bal b\d $10416; Process B $220956; Material $60825; Labour $ 54315; V.Overheads $21726; F.Overheads
$28968; Transfer to F.goods $384100; Bal c\d $13106
Question 16 Alpha.
a) (i) Process A- FIFO: Balance c/d $18 480;Transfer to PB $218 700
Process B FIFO: Balance c\d $12 960; Transfer to F.goods $476 650
(ii) Process A – AVCO: Bal c/d $18 480; Transfer to PB = $218 700
Process B – AVCO: Bal c\d $14093; Transfer to F.goods $475517
Question 17 Sparky Ltd

Process 1: Bal b\d $17960; Material $150200; Labour $ 121600; Variable and fixed Overheads $136 560; Transfer to
Process 2 $418 080; Bal c\d $8240
Process 2: Bal b\d $27560; Process 1 $418080; Material $141300; Labour $ 71640; Variable and fixed overheads
$62688; Transfer to F.goods $713670; Bal c\d $7598
Question on Joint product and By-Product

Question 18 Chemiflo
a) Units produced:
- L 2 000
- M 2 500
- H 3 000
b) Value of closing Inventory:

- L $1 784
- M $3 363
- H $4 925
c) Revenue $122 700

Cost of sales $60 988
Gross Profit $61 712
Closing Inventory: L, M & H - $10 072
d) Revenue $122 700

Closing Inventory $ 10 260 – L = 2 520, M = 3 440, H = 4 300
Question 19 QR Ltd
Question 20 BK Chemicals
a (i) Profit A $3 500
B $7 500
C $8 000
Total $19 000
a (ii) Profit and Loss A $2 500 Loss

B $27 500 Profit
C $27 500 Profit
Total $52 500
b (i) A = $14 237

B = $13 559
C = $12 204
b (ii) A = $6 487
B = $17 298
C = $16 217

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ADVANCED LEVEL ACCOUNTING – S.M.AULLYBUX & D.

Answer key for multiple choice questions

Question 3 Paula Aniston

ai) Pfdd at 31 Dec 2006 = 3 % x 160 000 = 4800

d) Extract of Balance sheet

(c) Balance Sheet (extract) at 31 December 2010

d) Revised Pfdd = 4 % x (16800 + 12600 + 7100 + 1300 – 700) = 1484

e) Reduce profit for the year

Question 1 Alcom Ltd

b(1) Dep: 2003 $130, 2004 $130, 2005 $310

Question 2 Mocota Ltd

Question 3 Lea Croft

c) Loss on disposal $4 200

Question 4 Berton Ltd

b) Loss on disposal of equipment $6000; Profit on disposal of vehicles $2500

c) Cost at 31 Oct 2010 – Equipment $1 070 000; Vehicles $690 000

Question 5 Laser Ltd

Property A\c (using method 1 of revaluation)

NBV of property 1 April 2008 164 000 (200 000 – 36 000)

Calcualtion of revaluation gain: Revalued amount 270 000

Property A\c (using method 2 of revaluation)

Depreciation for the year = 0.02 x 270 000 = 5 400

Pfd (property) using method 2 of revaluation

Calculation of accumulated depreciation on M.vehicle disposed

NBV of vehicle at start = 40 000 – 24 000 = 16 000

Total depreciation 1 April 2008 36 000 24 000 69 375

c) Cost at 30 April 2010 – Machinery $5 200 000; Vehicles $3 080 000

Calculation of accumulated depreciation of vehicle disposed

DM 2 June 2008 = 0.2 x 9000 = 1800

CT 18 June 2008 = 0.2 x 12000 = 2400

Cost of machine taken from inventory = 15 000 – 40 % x 15 000

Calculation of depreciation for the year

Acc dep of machine sold on 31 March = (2500 -2000) + 62.5 = 562.5

c) Loss on disposal $7400

Question 11 Tana Ltd

Schedule of Fixed Assets for year ended 31 December 2009

Total depreciation 1 Jan 72,000 160,000 85,000

Total depreciation 31 Dec 80,000 186,700 111,250

Dep on land and buildings = 2 % x 400 000 = 8000

Question 12 Austen Ltd

Land and buildings depreciation charge: 280 000 x 2% = 5 600

Chapter 3: Correction of Errors

Question 1: Samir Khan

a) Total trial balance $146 700 and balance suspense $1100.

b) 1. Dr suspense $2000, Cr sales $2000

Question2: Malcom Dsouza

B) Corrected profit $16178(+1000 + 14 +14 – 50)

a) 1. Dr suspense $192, Cr other payables $192

b) Bal b\d credit side $350

c) Corrected profit $3578 (+320 +160 +18 + 10 + 10 – 40)

b) Corrected profit $27800

Question 10: Alex

Question 12: Jack Sparrow

b) Corrected Profit $106 500 (+81 000 – 15 500 – 10 500 + 10 500)

Chapter 4: Control Account

a) Bal c\d: SLC (normal) $9820

Question 2 Popo Ltd

a) Bal c\d: SLC $12390

Question 3 Ryan Bond

a) Bal c\d: SLC $1456

Question 6 Dream Beds

b) $27 583 (28503 – 120 - 800)

Eratum change year 1999 (2 places) and 1997 to 2000